Market Report: Topsy-turvy day for Xstrata after rights issue

Companies were fighting for their rights yesterday, and the issuing frenzy – as well as the rumours of more to come – played merry hell with the markets.

After one mining giant, Rio Tinto, had admitted for the first time it was considering a rights issue the previous day, rival Xstrata went one better yesterday. It announced plans to raise $5.9bn (£4.1bn) to pay off debt with a heavily discounted two-for-one share offer. The shares dived 11 per cent on the news as the broker Evolution added that it could only see a downside from here.

On the second tier, Cookson Group, which makes industrial materials, said it too would tap shareholders for cash. It launched a 12-for-one deal to raise £240m, causing the shares to almost halve.

Then something strange happened. Both raged back up their respective indices to finish the day at the top or thereabouts. Xstrata closed up 3.61 per cent in a falling market, the best blue chip of the day. Cookson was second on the second line, up 12.35 per cent at 95.5p.

Some traders had a theory, and a heartwarming one at that: that the shorters were smashed. One explained: "Naturally traders wanted to short these stocks this morning. But they probably realised too late that the stocks were 'cum rights'." So if the trader sold a stock short at £6 per share, and they had borrowed from an institution that had taken up its two-for-one rights, they would have to deliver three stocks. Even at the discounted price they were sitting at a solid loss. The bear squeeze as they looked to cover their position might have been responsible for driving the stocks up strongly.

There were rumours that 3i Group was the latest institution considering heading cap-in-hand to shareholders. The previous day, the chief executive, Philip Yea, had stepped down, after he revealed that the group's investments had shed a fifth of their value. The stock plunged again, finishing with the wooden spoon, down 16.42 per cent to 210p.

Some further, flakier, gossip also did the rounds that Barratt Developments could be considering a rights issue. The market wasn't convinced as it lost 3.82 per cent to close at 69.25p. One market maker said: "Investors would be brave to take that one up."

The broker Goldman Sachs dragged Wolseley down, saying it would have to raise up to £1bn in equity, although wasn't convinced that a rights issue was the best way to go about it. The stock closed down almost a tenth at 170.8p.

Financial stocks weighed on the FTSE 100. After a storming day on Wednesday, in which Lloyds Banking Group had leapt 50 per cent, the profit-takers moved in. Lloyds itself spiralled downwards to close 11.79 per cent lower at 89p. The life insurers also suffered heavy losses.

The combined downward pressure of several heavyweight sectors – including pharma, as AstraZeneca numbers disappointed, sending it down 6.29 per cent to 2680p – dragged the top tier down. The FTSE 100 gave up 2.45 per cent, to close at 4,190.11.

Top of the blue chips in the morning was BSkyB Group following support from S&P Equity Research in the wake of the previous day's sterling half-year numbers. S&P lifted its target price from 450p to 540p, and despite weakening, it ended up 2 per cent at 500p.

The second line was also down significantly, giving up 2.3 per cent at 6272.61 points, and worst performer on the day was Informa, which sank almost 10 per cent to 243.25p, reversing a couple of days of rises. Also down was Misys, the financial software group, which fell victim to the rumour mill. There were reports of an imminent profit warning because of poor performance at its healthcare division. It subsequently sank 2.14 per cent to 114.5p.

Going great guns was Go-Ahead Group, which motored up the table after it was named top sector pick by Morgan Stanley. It upgraded the stock to overweight from underweight, saying the sector was better priced and the market was more aware of the earnings quality and future. It closed up 2.79 per cent to 977p.

Scurrilous gossip surrounding Clinton Cards spooked the market yesterday. It slumped in the morning on talk that it would be the latest high street chain to totter. The shares rallied later in the day, and the company denied the idea outright, putting to bed all of the terrible jokes about the card company folding. It closed down 12.5 per cent at 8.75p.

At the bottom of the small cap market was Central Rand Gold, which plummeted after rumours that it might have to raise capital from shareholders to push ahead with certain developments. The market wasn't wholly convinced and it bounced slightly, but remained at the bottom, down 24 per cent at 34.75p. This despite an update which said: "Importantly, the company does not anticipate that it will require additional funding during 2009 to achieve the targeted production rate."

Racing to the top of the small caps was Speedyhire, bouncing off the back of some bear covering to close up 13.87 per cent at 78p. The shorters were reducing their exposure to the industrial sector, and Ashtead Group also rose 2.5 per cent to 40p.

The growth market wasn't quite so badly hit. Among the top risers was Deutsche Land, which announced to the market yesterday that it was reviewing its strategic options. This included considering the indicative offer it had previously dismissed in December as inadequate. Despite no indication that the unnamed bidder would charge back in, the stock rose a quarter to 5.5p.