Market Report: Tullow's latest gas hopes evaporate

Tullow Oil's foray into Kenya has had yet another hiccup. Perhaps it was the gas. On Monday the explorer revealed it had found gas but no oil at a well off the Kenyan coast. Then yesterday afternoon it revealed that, disappointingly, gas was not found lower down in the Mbawa-1 well. Said well will now be plugged and abandoned.

In May Tullow was left red faced when it was forced to issue a statement on progress at its Ngamia-1 well, onshore in Kenya, after it accidentally let slip confidential information to investors.

The Mbawa-1 well was the first offshore Kenyan gas discovery, and at least it was described as "encouraging". Tullow said that although it was unsuccessful the results would be "vital in evaluating the still significant prospectivity of this block".

Tullow is working on the well with the US-based operator Apache and its Australian partners, Origin Energy and Pancontinental.

After losing 18p on Monday, Tullow fell another 29p yesterday to 1,357p.

Punters donned their tin hats and turned defensive yesterday, leaving the blue chip FTSE 100 down 1.01 points at 5792.19. Safe-haven stocks were in favour, with British American Tobacco up 57.5p to 3,182p, as a cautious feeling swept the City ahead of a German court's ruling on its participation in the planned European bailout today.

Meanwhile, riskier stocks – including most of the mining sector – dived towards the bottom of the benchmark FTSE 100 index with Fresnillo down 49p to 1,707p and Vedanta Resources and Anglo American also tumbling.

Vedanta was also hit by revelations of a scam in India which pushed Goa to impose a temporary ban on mining. The southern state is the country's second-biggest iron ore producer and both Vedanta and its Indian arm, Sesa Goa – which is merging with Sterlite Industries –have been affected by the ban. Vedanta lost 24.5p to 978.5p but experts do not expect Goa's move to have a long-term impact on the miner.

Anglo American, down 46.5p at 1,955p, meanwhile received a downgrade. Analysts at JPMorgan said Anglo's valuation still did not "adequately reflect the various risks the company faces" and they cut their price target to 1,750p from 1,900p.

Over on the FTSE 250 the South African platinum miner Lonmin lost 8p to 611p as its workers strike continued to rumble on. Fears are mounting that unrest will continue to spread across South Africa's mining sector.

Royal Bank of Scotland topped the leaderboard, up 11.7p to 264.7p. Scribes at JP Morgan said they would retain their neutral stance on the shares but added that at current levels there was "better value in RBS than Lloyds".

The software giant Sage edged up 1.4p to 305.8p. On Monday analysts at Galvan Research issued a buy rating following renewed M&A rumours. Andrew Gibson at Galvan said there was "the distinct possibility that Sage could be a target of German sector peer SAP". Some traders speculated that private equity players might also take a look.

The handbags and gladrags at Burberry haven't tempted enough shoppers to part with their cash. The luxury fashion group found itself at the bottom of the FTSE 100, down more than 20 per cent, losing 287p to 1,088p, after a profits warning. The fall prompted some traders to start bottom-fishing and buy the shares.

The revelation of slowing sales growth also tarnished luxury peers in Europe. French giant LVMH, the parent of Louis Vuitton, lost 3.36 per cent and the Gucci owner PPR Group was down more than 2 per cent.

Today's FTSE 100 quarterly reshuffle is likely to see the broker Icap leaving and the energy services company John Wood Group will rejoin after a year's break. The final sign-off of who joins and who leaves will be confirmed at the end of trading today.

Among the small caps Anglesey Mining shot up 1p to 9p. It was revealed that its chief executive, Bill Hooley, demonstrated his confidence by buying 100,000 shares in the company. He now holds 200,000 shares.

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