Market Report: Shares slump as recession fears take hold

It was a miserable end to a miserable week. The fears of recession took hold in earnest yesterday and the terror was palpable. The market opened and plunged, screaming down 10 per cent to smash into the 3,000-levels for the first time in five years.

The lurch was brought on by the late fear in the US overnight. It knocked on to Asia with the Hang Seng down 7.19 per cent and the Nikkei off 9.62 per cent, its biggest one-day fall since the market crashed in 1987.

The banks slumped in the UK as any slight confidence evaporated. As the sector suffered, traders were predicting the demise of Morgan Stanley by as early as tomorrow night.

Of the blue-chip banks, Barclays was the worst in the morning, down almost a fifth to 194p after it confirmed that it could consider raising capital. It closed 14.17 per cent down at 207.5p. Royal Bank of Scotland gave up the most from the sector, shedding a quarter of its value to close at 71.7p.

Other financial stocks were smacked on the recession fears with the asset manager Schroders the worst performer, the day after Henderson warned on profits. The group closed 28.9 per cent lower at 547.5p as fears over clients withdrawing funds grew.

The insurers also suffered from the reversal in sentiment, after Japanese insurer Yamato Life collapsed. Legal & General was the lowest, shedding 16.07 per cent to 74.7p, while Admiral Group was down 2.17 per cent to 880.5p. Admiral avoided the worst of the sell-off after it put out a solid trading update. Analysts approved although expressed some concerns over its online Confused.com business.

The US fell a further 3 per cent by the close of trading in London, knocking the FTSE 100's attempted rally. The UK top tier closed down on solid volumes, 8.85 per cent lower at 3,932 points.

There was no support for the miners, as they suffered the latest in a string of dips on weaker prices. Citigroup brokers pointed out that the sector was the worst performer in the third quarter as demand for the commodities have slowed and prices fallen, a dramatic reverse from the previous year when it was the best performer.

Royal Bank of Scotland analysts said: "We think the sector will remain volatile for the next three months, without clear direction, until we see signs of pricing stabilisation in key commodities." It predicts stability by the first three months of next year.

The broker slashed its price targets across the UK-listed groups, but maintained "buy" ratings on several. This included the Anglo-Swiss group Xstrata, which it cut from 4,600p to 2,900p. This sent Xstrata's shares down 11.27 per cent to 1208p.

The mid tier had slightly more success – there was more than one stock in positive territory after all – and it was topped in the afternoon by Soco International, after the group announced it was in talks to sell the majority of its assets. Shares in the group jumped 11.39 per cent, before settling for a 2.3 per cent gain at 1150p. Earlier this year it sold its Yemen portfolio to Sinochem. The Chinese are rumoured to be the ones looking to snap up these latest assets as well.

Punch Taverns was up 0.15 per cent to 161.75p on talks that a big short position had been covered. Some traders speculated that the move came on the back of Kaupthing's collapse and the subsequent unwinding of its positions.

The extraordinary volatile week dragged Aricom back to the bottom of the second line. The group is attempting to raise $1bn to finance projects in Far East Russia. But with the miners down en masse and the banks shedding value, investors sent it crashing 26.15 per cent to 12p.

The publishing stocks were also in focus after UBS put out a note on the sector. While it upped the target price for the Daily Mail & General Trust group, it cut Trinity Mirror from 70p to 60p over declining advertising prospects. The Mirror publisher fell 11.89 per cent to 63p.

In the wider market, Woolworths Group rallied after Sir Alan Sugar took a 4 per cent stake in the pic "n" mix group. It also agreed a deal to sell nine stores to Tesco. Time will tell if Sir Alan's stock picking is as good as his self-promotion, but there was an immediate bounce with the shares climbing 29.3 per cent to 4.06p.

Investors in Abacus Group were counting on some good news after recent under performance in the shares, and it duly came as it agreed a £42m offer from Avnet. The shares in the group, which makes electronic components, stormed up 92.16 per cent to 49p.

The worst on AIM was IFR Capital, whose shares plunged 48.39 per cent to 0.075p. The group put out a statement saying there had been no "material change" since announcing figures last month. The group has to overhaul its capital structure to improve its balance sheet, and in these uncertain markets, it took an absolute pasting.