Outsourcers were in favour, with Logica climbing higher, as fears of cutbacks and delays to Government contracts began to fade last night.
The catalyst was news of a memorandum of understanding (MoU) between the Cabinet Office and the UK arm of France's Capgemini. The memo, which follows a similar MoU between the Government and Atos Origin last week, confirmed that "all existing contracts remain and continue to be delivered as planned", soothing nerves across the sector.
"It moves the sentiment dial to positive – remember Atos shares were up 7 per cent on its MoU," Panmure Gordon said. "Sources suggest that Logica's MoU is about a week behind... and should serve to remind investors that the shares, trading on a current price to forward earnings multiple of 10.2 times, are inexpensive relative to the sector (trading on 14.3 times) and Logica's traditional trading range."
Cheered by the optimism, Logica rose by nearly 5 per cent or 5.6p to close at 124.7p and Capita adding 21.5p to end the session at 770.5p
Overall, it was a quiet day on the London market, with the benchmark FTSE 100 up 1.88 points at 5,567.41, closing broadly unchanged following positive data on US retail sales. The UK-focused FTSE 250 index, on the other hand, fell by 35.89 points to 10,472.44 on news that consumer price inflation had held steady in August, defying expectations of a decline.
Lenders were broadly firm as traders continue to buy on the new bank capital rules. Standard Chartered was the strongest, adding 24p to 1,930.5p, while the Royal Bank of Scotland rose by 0.48p to 50.15p. Lloyds was slightly lower at 77.14p, down 0.47p, whereas Barclays was slightly higher at 324p, up 0.3p.
Elsewhere, profit-taking weighed on parts of the mining sector. Antofagasta, for instance, was 4p behind at 1,151p. Anglo American at 2,572p, down 15p, and Lonmin at 1,700p, down 5p, were also held back. Of the risers, the Eurasian Natural Resources Corporation gained 23.5p to 884.5p.
ARM Holdings was the weakest of the blue chips, shedding around 4 per cent or 16p to 389p after share sales by directors triggered a round of profit taking. The chip designer has enjoyed a strong run of late and even after last night's falls is up around 40 per cent since the beginning of July, drawing steam from bid rumours, evidence of new business and predictions of stellar growth in the market for smartphones and tablets.
Next was also lower, easing by 43p to 2040p ahead of its half-yearly results this morning. The move down was pegged on Société Générale, whose analysts lowered the stock to "sell" from "hold". "Taken as a whole, Next is far from being a growth story... Total Next brand sales in the UK in the last quarter grew by only 2 per cent. In like-for-like sales terms, Next is underperforming M&S as the latter benefits from trading up," the broker said, scaling back its target for the stock to 1,764p, compared to 2,335p.
Also on the downside, TUI Travel was marked down by 4.1p to 221.8p after Bank of America Merrill Lynch turned cautious, moving the stock to "neutral" from "buy" in a wide ranging sector roundup. The broker expressed a preference for Thomas Cook, which was slightly lower at 196.3p, down 1.2p. "Due to its centralisation, airline synergy plan and OTA [online travel agency] strategy, we see the prospect of earnings upgrades at Thomas Cook," the broker said, repeating its "buy" view on the stock.
Back on the upside, and Credit Suisse boosted Cobham, the defence group, which added 4.6p to 238.3p. "To a certain extent, Cobham looks poised at a crossroads to us," the broker said, revising its stance to "outperform" from "neutral". "If it is successful in its cost streamlining programme it will emerge stronger. If it does not succeed, then it is our belief that its assets might be viewed as a good strategic fit for several US prime players."
Credit Suisse was also positive on BAE Systems, which edged up by 1.3p to 334.4p after the broker adopted an "outperform" stance. Countering worries about the Government's cost-cutting drive, the broker noted that while BAE's UK exposure accounts for 20 per cent of sales, its estimates suggested that "key platforms under scrutiny represent around 4 per cent at lower profitability".
"Following its past problems, the group has become operationally leaner and more geographically diverse," the broker said, setting a 400p target on the stock. "We also believe it could emerge relatively unscathed from the UK SDSR [Strategic Defence and Strategic Review] and the fourth quarter of 2010 could thus prove to be a low point of negativity for the shares."
The housing sector was out of favour after data from the Royal Institution of Chartered Surveyors showed that house prices had declined to their lowest level for 15 months in August. A report from the Department for Communities and Local Government, which evidenced a slowdown house-prices between June and July, added to the gloom, depressing the mood surrounding Bovis Homes, which was 11p behind at 373.9p, and Barratt Developments, which was 2.5p worse off at 102.6p.