Market Report: S&N drops as FTSE 100 falls to 11-month low

As the FTSE 100 suffered its worst single session since March 2009, Smith & Nephew (S&N) slumped to a nine-month low last night after analysts rubbished hopes of a recovery in the orthopaedic market.

The artificial hips and knees manufacturer, which releases its interim results today, was driven back 34p to 564p – its cheapest level this year – in the wake of Shore Capital reiterating its "sell" rating. Describing recent comments from its US peers Stryker and Biomet as "discouraging with respect to a near-term rebound" in the sector, the broker said that "any expectations of a return to previous levels [of growth for the industry] are overly optimistic".

Its analysts warned of a number of issues facing the orthopaedic market, including falling prices and cost-cutting patients putting off operations. "As a result our forecasts suggest mid-single digit revenue growth for the industry longer term," they said, "far short of the heady high-single digit growth of more recent times."

The bearish comments overshadowed Seymour Pierce's Mike Mitchell's decision to keep S&N's "buy" rating, with the analyst forecasting "steady" results today. The group has been the subject of persistent chitter-chatter it could be a takeover target, and Mr Mitchell noted that "private equity has once again become interested in the sector", adding that "the wider landscape still suggests deal-flow".

A fifth straight consecutive sell-off meant the FTSE 100's nightmare week intensified, as it closed at its weakest since last September. For a brief moment in early trading the top-tier index actually moved up, but from then on it dropped lower and lower before finally closing 191.37 points weaker at 5,393.14.

The eurozone debt crisis continued to dominate, knocking the banks as Lloyds Banking Group lost over 10 per cent of its share price, despite revealing first-half pre-tax profits of £1.1bn that were ahead of analysts expectations. It moved back 3.97p to 34.99p, while Barclays and Royal Bank of Scotland jumped down 16.5p to 196p and 1.95p to 30.28p respectively.

With investors nervous ahead of today's US non-farm payroll figures – a key sign of the state of the country's economy – the miners were dragging the index down and the sector was not helped by Rio Tinto, which slipped 218.5p to 3,796.5p as it blamed rising costs for its first-half profits failing to meet expectations.

Meanwhile, Inmarsat lost over 19 per cent of its share price, plummeting 94.4p to 394.5p after saying it no longer expected its maritime unit to grow this year.

By the bell, only four blue-chip stocks had managed to keep their heads above water. Unsurprisingly, gold's status as a safe haven prompted the precious metal to touch yet another new high during the day, enabling Randgold Resources – which revealed its second-quarter profits had more than tripled – to take the top spot after it climbed 365p to 5,920p.

Traders' unease over the lack of news from Misys' takeover talks with Fidelity National Information Services proved well-judged after the US payment processor revealed it was walking away.

The announcement forced the software group back 66.8p to 291.3p on the FTSE 250, although Numis Securities' David Toms was not ready to give up quite yet, saying that "even if the first bid 'fails' once a software company is put into play, it nearly always ends up acquired". He went on to speculate that Misys could be in line for a break-up, but Matrix's Rajeev Bahl said he expected the stock to lose all of its bid premium.

The analyst was more positive on the takeover potential of Micro Focus (which revealed private equity interest in May), however, saying the group was "inexpensive with low expectations, lower earnings risk and a better market position in a less volatile end market", although it still slumped 23.7p to 249.3p.

City scribblers were also trying to talk up the bid chances of Shire, with Goldman Sachs describing the blue-chip drugs maker as "one of the more attractive strategic assets in the industry". Yet, with JP Morgan saying earlier in the week that the idea of it becoming a target was "improbable", Shire eased back 41p to 1,904p, a fifth straight day behind.

The small-caps failed to escape the wider market sell-off, and a sharp fall even prompted Pursuit Dynamics to put out a statement stating the technology group knew "no reason" for the retreat, as it shot back 60.75p to 193.25p on the Alternative Investment Market.

Sportingbet was knocked back 4p to 49p on the small-cap index after investors gambling on a takeover deal being agreed between the gaming group and Ladbrokes – down 5.7p to 141.8p – were left disappointed after the mid-tier index bookmaker failed to provide any update on the bid talks alongside its interim figures.