Market Report: Uncertain outlook clouds sentiment around Barratt

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Barratt Developments was held back as the bears built on the prospect of continued weakness in sector sentiment last night.

The stock was marked down by 3.75p to 97.55p, while Persimmon lost 13.5p to 356.2p and Bellway closed at 579.5p, down 3.5p, as Royal Bank of Scotland warned on the headwinds holding back share prices across the housing sector. Housing stocks have been weighed down by worries about the broader economy, with sellers seizing on concerns over the withdrawal of stimulus measures, the looming fiscal squeeze, planning difficulties and the trajectory of consumer demand.

These worries are likely to persist for some time, according to RBS, and that in turn is likely to weigh on the mood around Barratt and its peers, limiting the scope for near-term gains in sector share prices. "If our central scenario of house price stability plays out, we believe the sector offers good value, with average potential upside of 30 per cent. Alternatively, share prices seem to be factoring in [house price deflation of around 5 per cent] and 10 per cent volume declines in 2011," the broker said. "However, the value case needs to be set against the downside risks to trading and, in an often sentiment-driven sector, likely statistical [and] newsflow headwinds over the second half of the year."

Overall, the market turned lower, with the FTSE 100 shedding 45.99 points to 5,319.68 and the FTSE 250 ending the day at 10,019.7, down 86.73 points. The big issues were broadly lower, with weakness in crude prices weighing on Royal Dutch Shell, which was 34.5p behind at 1,787p, and BG, which was 23.5p worse off at 1,039.5p after issuing a second-quarter earnings report. BP was also held back, losing 3.5p to 402.5p following reports that US government agencies were readying a criminal inquiry of at least three companies involved in the devastating Gulf of Mexico oil spill.

Profit-taking weighed on Barclays, which was 0.45p down at 339.1p as Oriel revised its stance to "hold" from "add". Royal Bank of Scotland fell by 0.62p to 49.73p, leaving the Treasury sitting on a paper loss on its investment. Lloyds was also lower, ending 2.45p behind at 69.35p despite some support from Deutsche Bank, which named the state-backed group as one of its top pick among European banks.

Deutsche's strategists also upgraded their view on the European banking sector in general, saying that the recent announcement from the Basel Committee on Banking Supervision, which relaxed some of its proposals on capital and liquidity requirements at the beginning of this week, was "the news we've all been waiting for".

"With the stress tests at least now out of the way and the Basel Committee coming through with a less stringent set of recommendations, we think the bank sector now looks ripe for a sustainable recovery," they said.

Elsewhere, Whitbread was 6p worse off at 1,438p after JP Morgan Cazenove warned that while the company's Premier Inn hotel chain was still expected to outperform the market, the hospitality group was unlikely to receive a boost from current strength in the London market.

"June hotel market data demonstrates the ongoing disparity between the strength of demand in London, where RevPar [revenues per available room] was up 15.8 per cent and the provinces, where RevPar was [up] 1.3 per cent," the broker said, pointing to Whitbread's "dependence on the UK regions, which account for 85 per cent of rooms".

Part of the weakness last night was down to a handful of ex-dividend stocks, which fell as income investors moved out. The pharmaceutical group GlaxoSmithKline, down 20.5p at 1,134.5p, the financial services group Investec, down 12.5p at 502p, and the utility group Scottish & Southern Energy, down 63p at 1,115p, all went ex-dividend yesterday. On the FTSE 250, Fenner, the industrial conveyor belt manufacturer, which was 7.8p behind at 223p, and the UK Commercial Property Trust, down 3.4p at 76.1p, were held back for the same reason.

In deal news, Brit Insurance rallied, swelling by 10 per cent or 91.5p to 1,005p after the US buyout firm Apollo renewed its efforts to acquire the Lloyd's of London insurer. Apollo, which was rebuffed after putting forward a revised indicative proposal valuing Brit at 1,050p per share earlier this month, finally made some progress after sweetening its bid, raising the possible offer price to 1,075p per share. Brit said that while there is no certainty that an offer will be made, it had now opened it books to the US buyout firm.

Speculators had little luck with renewed rumours of bid interest around Luminar, the nightclub operator, which was 0.25p lower at 11.75p last night. Vague takeover chatter was also evident around Southern Cross Healthcare, the care homes operator. Like Luminar, Southern Cross Healthcare has performed strongly in recent sessions, but gave way as the rumours failed to gain any traction last night, closing 3p lower at 32.5p. Telecity, the data centres specialist which has also featured in the market rumour mill in recent weeks, was also pressured, ending the day at 433.5p, down 3.5p.

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