Market update - 9 January

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The FTSE 100 was down 28.17 points at 4477.2 while the FTSE 250 eased to 6687.48, down 4.77 points, at 11.53am.

Sentiment was weak as investors awaited a report on US employment. The figures, which are due to be released this afternoon, are expected to show a sharp rise in the number of people out of work, confirming the increasing pace of the economic and financial storm on the other side of the Atlantic.

Moving up

HBOS was the strongest on the FTSE 100, rising to 78.2p, up 5.68 per cent or 4.2p, as traders looked forward to a smooth takeover by Lloyds TSB, up 3.82 per cent or 4.9p at 133.3p, next week.

BNP Paribas, which weighed in on the two banks this morning, said that although the combined group will have to deal with a number of short term headwinds, “the share price more than captures the risks”.

“The outlook for the Lloyds Banking Group is highly uncertain. However, following the 40 per cent collapse in the Lloyds TSB share price since [the end of October], in our view, the risks are fully priced in,” the broker said.

“As such, at this stage and entry price we now recommend a preference for Lloyds Banking Group relative to our European banks benchmark. We have very high conviction that Lloyds will meet or exceed our forecast of £1.8bn per annum synergies by 2011, and this provides a very material offset to the two banks’ exposure to the impact of UK recessionary impairments.”

Elsewhere, on the FTSE 250, Yell surged to 56p, up 16.67 per cent or 8p to 56p after a Goldman Sachs “buy” noted sparked some short covering.

“Yell had de-rated far more than other ‘debt risk’ stocks, thus offering a greater potential rebound,” the broker said, removing its “neutral” recommendation.

Moving down

BSkyB was on the back foot, losing 4.95 per cent or 23.5p to 451.5p after Goldman moved the stock to “sell”.

In the mining sector, Anglo American was the weakest among the blue chips, losing 5.98 per cent or 97p to 1526p after Merrill Lynch switched its stance to “underperform” from “buy”, saying that the company’s earnings were under significant pressure given the current spot commodity prices.

Merrill also downgraded Xstrata, which was down 5.62 per cent or 49.5p to 831p.

“Xstrata’s shares have rallied 50 per cent off their debt fear driven lows and as we enter earnings season, we believe that Xstrata’s geared balance sheet means that potential negative earnings surprises across the sector, negative macro newsflow and negative outlook statements from peers could weigh on the shares,” the broker said, moving the stock to “neutral”.