Market update - 4 March

The FTSE 100 edged up by 78 points to 3590 while the FTSE 250 advanced to 5982.7, up 131.9 points, at around 11.59 am.

Although firm this morning, the benchmark index is still down by more than 8 per since the end of last week – sharp falls over the last three sessions have put the blue chips on course for one of their worst weekly performances on record.

Traders remain concerned about the trend in the market, with Joshua Raymond, market strategist at City index, highlighting the fact that “nothing has fundamentally changed over the last twenty four hours”.

“Investors are using each rally to sell positions rather than take up new ones and this is a big problem for sentiment,” he said.

Moving up

This morning’s bounce was largely down to the heavily-weighted mining sector, which was said to be enjoying a relief rally as braver investors sought to capitalise on recent losses. The push up was also attributed to speculation that China may ramp up its economic stimulus plans, possibly providing an extra shot in the arm to flagging industries and, in turn, spurring the demand for commodities.

Kazakhmys was the strongest of the lot, gaining 13.1 per cent or 31p to 266.5p. Xstrata, the target price for which was raised to 410p from 406p at Goldman Sachs, was 10.6per cent or 35.5p ahead at 368.2p while Antofagasta advanced to 461p, up 9.8 per cent or 41.2p.

Wolseley, the construction materials group, gained 10.6 per cent or 17.2p to 178.2p amid chatter about a rights issue, which many expect to be unveiled at the start of play tomorrow.

Parts of the banking sector enjoyed what traders characterised as a “dead cat bounce”, with Lloyds Banking Group, which said its talks regarding participation in the Government’s asset protection scheme were “going well”, gaining 4.6 per cent or 2.1p to 47.6p.

Moving down

In the commercial property sector, Brixton was down 9.2 per cent or 2.5p at 24.5p after Fitch placed the company’s rating on negative watch.

ITV was 0.2p behind at 23.5p after posting fully year results, announcing 600 job cuts and axing its dividend in a bid to conserve cash as advertising revenues decline.

Returning from the post results analyst meeting, Numis Securities said: “We believe that although ITV has solid near-term liquidity, its debt is high in absolute terms. We are finalising our forecasts but expect earnings before interest, tax, depreciation and amortisation to emerge at under £200m, while the group is unlikely to generate significant cash in 2009 due to the cash costs of restructuring and pension charges.”

The broker added: “Therefore, we expect [the 2009 net debt to earnings ratio to come in at] over 4 times. The group also has a pension deficit of –£178m, with gross assets and liabilities of £2.1bn and –£2.3bn respectively. Fitch has this morning downgraded ITV to BB– with a negative outlook and indicates that ‘while in most of Fitch’s modelled scenarios, ITV is able to repay the 2011 maturity [bond] out of existing resources, there is the potential in certain circumstances for a liquidity gap in 2011.”

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