Market Report: Stay-away shoppers could hit Home Retail

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The spectre of tighter purse strings unsettled Home Retail Group yesterday after UBS took stock of the impact of the recent market turmoil. The broker said that the events of the past fortnight – the loss of thousands of jobs at Lehman Brothers and the volatility in the HBOS share price, for example – may prompt shoppers to spend less on the sorts of durable goods offered at HRG's Argos and Homebase chains.

"While the events of the last fortnight may have ended with the FTSE 100 and many stock prices broadly unchanged, in our view they will be taken as a net negative by the average UK shopper. The main risk is that consumer confidence – which was already at very low levels – sinks further," said the analyst Andrew Hughes, adding that while apparel retailers such as John Lewis may have been helped by the change in the weather "adverse impact could thus be focused on [the] already-weak durables sector".

The assessment kept Home Retail weak for most of the session, with the shares touching a low of 243.5p, down 10.5p. Late strength helped the stock climb back and at close, Home Retail was up a slight 0.75p at 236.5p.

Stocks were also unsettled in the wider retail sector after Citigroup said that there was a risk to dividends if sales fall a further 10 per cent, or below forecasts, at DSG International, down 1p at 55.25p, Sports Direct, down 1.5p at 64p, Mothercare, down 3.25p at 366.75p, and Kesa Electricals, down 3.25p at 123.75p. "Retailers tend to have high levels of operational and financial gearing. Therefore, in a weak top-line environment, we believe companies will choose to cut or suspend dividend payments rather than risk breaching covenants," the broker said.

The FTSE 100 was down 40.55 at 5,095.57 and the FTSE 250 was down 47.22 at 8,407.36. Sentiment was hit by rumours that the US government's bailout may not materialise due to opposition in Congress. IG Index's Anthony Grech said: "The summer's turmoil is still not over and uncertainty appears rife as further details on the ... bailout plan are yet to materialise."

John Paulson's Paulson & Co hedge fund declared a 1.18 per cent short position in Barclays, which was the weakest in the banking sector, down 11.75 at 345.5p. Paulson also declared a 0.87 per cent short position in Royal Bank of Scotland, up 6.75p at 210p, a 0.95 per cent position in HBOS, up 0.3p at 180.5p, and a 1.76 per cent position in Lloyds TSB, up 5.25p at 267p.

The miner Vedanta Resources was down 6.75 per cent, or 103p, at 1,424p after announcing that it had decided to abandon its restructuring plans, given the "recent changes in global financial markets and investor feedback". The change of heart follows reports of opposition from TCI (The Children's Investment Fund), the activist hedge fund. The wider sector also traded down and Anglo American, whose target price was cut to 3,525p from 3,750p at ING, was down 128p, at 2,008p, while Xstrata, whose target was cut to 3,800p from 4,350p, lost 118p to 2,117p.

Commenting on the recent weakness in the share prices, ING said that the sector had been oversold, noting that even its lowered targets offer between 35 per cent and 62 per cent upside. "As a result of the escalation of the credit crunch and deleveraging of hedge funds, many of which had held large positions in commodities and mining shares, the sector has struggled under the dual impact of the erosion of confidence in all markets," the broker said.

On the FTSE 250, Deutsche Bank's bearish sector review pushed pub companies lower. JD Wetherspoon, whose target was cut to 375p from 420p, was down 22.5p, at 270.5p, Enterprise Inns, whose target was cut to 470p from 800p, was down 6p at 180p, and Mitchells & Butlers, whose target was cut to 315p from 475p, fell 0.5p to 255p.

Kier Group, which lost 74.5p, to 833p, Interserve, which was off 19.5p at 315.5p, and Filtrona, which lost 8p, at 157p, were trading ex-dividend.

Among smaller companies, Gold Oil slumped 1.18p to 6.5p after announcing the termination of offer talks. Zeehan Zinc soared 90 per cent, or 1.13p, to 2.375p after confirming bid talks.