Market update - 1 October

The FTSE 100 was up 78.41 points at 4980.86 and the FTSE 250 was up 131.13 points at 9019.34 at 12.28pm. The banking sector rallied on hopes that the US Senate will vote in favour of the Bush administration’s $700bn bailout plan when it considers the proposal later today.

Comments from Gordon Brown that, contrary to recent market rumours, the Lloyds-HBOS merger was still on track, also boosted sentiment, helping HBOS gain 26.63 per cent or 32.6p to 155p and Lloyds climb to 261p, up 15.23 per cent or 34.5p. Credit Suisse, which weighed-in on the proposed merger this morning, also expects the deal to proceed, noting that “not only is there considerable regulatory and political pressure to get this deal done, but there are considerable cross shareholdings between the banks”.

“An analysis of the top 20 shareholders of each bank shows that 25 per cent of Lloyds TSB shareholders have equally larger percentage holdings in HBOS. Much of this will be in index funds. On the assumption that HBOS is worth little in the absence of a deal, this could sway these holders to vote the deal through. And the scheme of arrangement means that only 50 per cent of Lloyds TSB owners are needed to approve [the merger],” the broker said.

Moving up

The housing sector continued to soar on hopes of a reduction in interest rates. The talk was sparked last night, after Citigroup said that, given the recent market turmoil, “there is a decent chance that European central banks will make emergency easing soon, perhaps this week, especially if the US Federal Reserve is also ready to cut again”.

As a result, Barratt Developments was up 12.17 per cent or 12.75p at 117.5p and Persimmon gained another 6.53 per cent or 26p to 424.25p.

Moving down

Lonmin was the weakest on the FTSE 100, down 17.11 per cent or 389p at 1885p after Xstrata, up 132p at 1848p, pulled its 3300p per share offer for company. Traders said that, given the more than 10 per cent stake that Xstrata now holds in Lonmin, a deal might happen after the markets stabilize.

“This is certainly the outcome that the majority of [Xstrata] share holders will have wanted in the short term,” said Cazenove,

“Xstrata had become a natural target for short sellers in the market resulting in a 46 per cent fall since it made the offer on the 6th of August, under performing its peers by between 14 per cent and 29 per cent. This has clearly been exacerbated by redemptions and deleveraging of portfolios which saw the stock off 41 per cent in September alone.”