Market update - 8 September

The FTSE 100 was stuck at 5440.2, up 199.5 points, and the FTSE 250 was stuck at 9327, up 360.2 points, at 11.35am this morning – stuck because the London Stock Exchange suspended connections after traders reported problems with its trading platform.

"The LSE is down – we can't use it and it's been down for the better part of the morning now. There was a surge in activity because of the Fannie Mae/Freddie Mac bailout and then the system was suspended," said one trader,

"We're using alternative platforms because it's basically stuck. It's a problem at their end and we're just waiting for it to be sorted out. If you look at individual shares, they are suspended in one place – there is no movement."

Moving up

Before the suspension took effect, HBOS was strongest on the FTSE 100, up 12.98 per cent or 35.75p at 311.25p. The mortgage lender was leading the wider banking sector, which mounted a relief rally following the news from the US. The Royal Bank of Scotland, up 11.95 per cent or 26.25p at 246p, and Barclays, up 11.9 per cent or 37.75p at 355p, were among the other prominent risers in the sector.

Not everyone was convinced by the strength, however.

"Our US economists and strategists believe the GSE conservatorship [i.e. the takeover of Fannie Mae and Freddie Mac by the US government] will significantly improve the affordability of mortgage financing in the US. However, they believe the housing markets will still suffer from a lack of buyer demand, and they still expect 15-20 per cent further house price drops in the US. Based on previous market reactions to government actions, we can expect a strong rally in European banks. In the short-term, this will go against our call for increased dispersion, as low quality stocks will likely bounce the hardest. However, we still believe the sector faces many years of de-leveraging and that it must contend with a large volume of term debt refinancing in the coming months," Merrill Lynch said, adding:

"Once the initial relief rally fades, we expect to see greater differentiation between those banks which merely face the cyclical headwinds and those which also face structural changes to their business models."

The news from the US also boosted Wolseley, the construction materials group which was up 12.21 per cent or 53.5p at 491.5p.

Among the mid-caps, the house builders advanced. Beside news of the American bailout, leading stocks were aided by positive comment from Goldman Sachs.

The broker upgraded Bovis Homes to "neutral" from "sell", helping the stock advance to 482.25p, up almost 8 per cent or 35.5p.

Barratt Developments, whose target price was increased to 136p from 113p, gained 11.9 per cent or 17.5p to 164.5p and Persimmon, whose target price was increased to 359p from 272p, gained 8.6 per cent or 33p to 416.75p.

Moving down

Only three stocks were in negative territory on the FTSE 100. GlaxoSmithKline, down 26.5p at 1243.5p, and AstraZeneca, down 18p at 2587p, eased back as investors took profits following recent gains.

Cadbury was down 3p at 633 for similar reasons.

On the FTSE 250, Micro Focus International lost 7.39 per cent or 21.5p to 269.25p after UBS placed 25 million shares for Golden Gate Private Equity Inc. At 260p apiece, the placing raised gross proceeds of £65m.