Market Report: Taylor Wimpey recovers after 'irrational losses'

Taylor Wimpey rose by more than 15 per cent yesterday after UBS, which sparked a sell-off in housing stocks with a gloomy report last week, said the "Arma-geddon scenario" was already priced into the sector.

Current sector share prices assume land write-downs of 50 per cent, said the analysts Mark Stockdale and Gregor Kuglitsch, adding that they found it "hard to believe that all land owned by all UK house builders" could be written down by as much.

"We believe the market is being somewhat irrational," they wrote. "We expect that banks would waive covenants as they are broken, agree new price and covenant packages for existing debt and support house builder cash generation."

The analysts went on to acknowledge the possibility of rights issues if banks elect to be more aggressive, but, contrary to recent market speculation, ruled out debt for equity swaps.

Beside the report, housing stocks were also helped by the new short-selling disclosure regime introduced by the Financial Services Authority. The new rules, which come into effect from Friday next week, seek to reduce share price volatility by requiring the disclosure of significant short positions in companies undertaking rights issues.

Traders said the move would have a positive effect on the housing sector, which is expected to host the next round of rights issues. The combined effect of the UBS report and the FSA action took Taylor Wimpey up by 9.5p to 70.5p.

In the wider sector Redrow gained 22.75p to close at 163.75p, Barratt Developments rose by 10.25p to 86.5p, and Persimmon was up by 38.75p at 411.5p.

The FSA move especially pleased investors in HBOS, which slipped below its 275p rights issue offer price earlier this week. The decline in the share price, which happened amid a wider sell-off on Wednesday, had sparked fears for the new issue. Assured that any volatility caused by short selling was on its way out, investors drove the stock up by almost 14 per cent or 38.75p to 321.75p, to first place on the FTSE 100 leader board.

The new rules also cheered FTSE 250-listed Bradford & Bingley, which is raising £258m via a rights issue, and Johnston Press, which is also raising capital in the market. B&B closed up 8.62 per cent or 6.25p at 78.75p, while Johnston, which drew extra support from speculation about a bid from shareholder Usaha Tegas, gained 20.26 per cent or 11.75p to 69.75p.

Overall, the banking sector rally helped the FTSE 100 offset the impact of weakness among the miners and other resources stocks and the benchmark index rose 12.3, or 0.2 per cent, to 5,802.8. The strength among housebuilders drove the FTSE 250 up 98.1, or 1 per cent, to 9,652.3.

On the FTSE 100, resource stocks dominated the loser board as the price of oil slipped further away from earlier highs. By close, Cairn Energy was parked at the bottom of the index, down more than 4 per cent or 142p at 3,283p.

Tullow Oil lost 33p to 887p and Amec, the oil services company, was down 15.5p at 918p.

A similar story unfolded in the mining sector, where leading stocks were pulled down weaker metals prices and a stronger dollar.

Kazakhmys, at third place from the bottom, was the worst off. The Kazakh miner lost 47p to 1,550p. Eurasian Natural Resources Corporation, its compatriot, was down 39p at 1,321p.

Anglo American, which was up 3p at 3,189p, bucked the trend thanks to Credit Suisse, which said the stock ranks as its top pick in the sector. The broker weighed-in on a possible takeover by peer Xstrata, which closed down 72p at 4,160p. "If [Xstrata] were to offer 4,000p for each share in Anglos on 50/50 cash and share deal, a possible acquisition could add 1 per cent to the group's earnings in 2009," Credit Suisse said, adding: "We believe that such a deal could be a lot more value accretive in the medium to longer term given the production growth offered by both groups and the product diversification of the combined entity."

On the FTSE 250, Rightmove was down 2.25p at 330.75p. The stock was hurt after the company said Nick McKittrick, the managing director of Rightmove.co.uk, had cut his stake by selling 771,000 shares at 325p apiece. A note from UBS, in which the broker introduced a short term "sell" rating on the stock, also contributed to the slide.

On AIM, Econergy International, the Americas-focused renewable energy producer, soared by 34.85 per cent or 11.5p to 44.5p after Suez Energy South America made an-all cash 45p per share offer for the company. KBC Peel Hunt said that while the last offer for the company, from Trading Emissions, was "highly opportunistic", "Suez will, if successful, have more of an industrial fit".

"Other trade plays though could yet take an interest," the broker said, discounting the possibility of a counter offer by Trading Emissions.