Market update - 4 December

The FTSE 100 was up 15.58 per cent or 4185.54 and the FTSE 250 gained 24.36 points at 5873.3 at 12:16 pm after the Bank of England bowed to calls from the market and reduced the UK’s benchmark interest rate to 2 per cent from 3 per cent.

Howard Archer, chief UK economist at IHS Global Insight, said another large cut was not out of the question if the economic picture deteriorates further between now and when the Bank meets again at the start of 2009.

“We expect the Bank of England to reduce interest rates by a further 75 basis points to 1.25 per cent in January and would not rule out a larger cut if the economic downturn continues to deepen,” he said,

“We now expect interest rates to fall to a low of 0.50 per cent in the second quarter of 2009 and then stay there for the rest of the year. However, it is not inconceivable that interest rates could come all the way to down to zero.”

Moving up

The reduction overshadowed another grim report on the housing market from the Halifax, boosting housing and other consumer related stocks. Businesses with large debt piles also advanced as investors welcomed the prospect of lower interest bills.

In some cases, the upward pressure triggered a bear squeeze as short sellers moved to abandon downside bets. As a result, Wolseley, the debt-burdened plumbing supplies group, surged to 340.5p, up more than 10 per cent or 31p. House builder Barratt Developments – another business that has seen its share price slump owing to concerns about the housing market slowdown and high levels of debt – was up 17.76 per cent or 9.5p at 63p.

Elsewhere, in the leisure sector, Enterprise Inns was up 12.18 per cent or 7.5p at 66.75p on hopes that rate cut might stimulate consumer spending.

Vague talk of a possible merger of acquisition boosted Aberdeen Asset Management, the fund manager that climbed to 97.5p, up 8.33 per cent or 7.5p.

Rentokil Initial was firm, gaining 1.52 per cent or 0.5p at 33.5p, as rumours of a discounted rights issue faded. Earlier in the week, market speculation had suggested that the new management team was planning to raise capital to deal with the business support services group’s debt burden.

Moving down

Xstrata was the weakest on the FTSE 100, down 7.31 per cent or 50.5p at 640p after Goldman Sachs reduced its target price for the stock to 1240p from 1579p.

The reduction came as part of larger note in which the broker switched its stance on the sector to “neutral” from “attractive”, sending Antofagasta down more than 6 per cent or 24.5p to 381.25p and Anglo American, whose target price was cut to 1495p from 1629p, down 1.82 per cent or 24p to 1293p.