Royal Bank of Scotland provided the main talking point in the London market last night, rising more than 14 per cent amid speculation about possible disposals. The stock was strongest among the blue-chips, gaining 14.05 per cent or 6p to 48.7p, following chatter that the sale of the bank's insurance arm was on track, with more than one suitor still locked in discussions.
The talk overshadowed recent reports that the banking sector might face a "second credit crunch" in 2009 as corporate bad debts rise, potentially sparking another round of recapitalisations.
Elsewhere, resource stocks dominated the market as rising tensions in the Middle East boosted the price of commodities. Traders said the Israeli air strikes in Gaza had pushed demand concerns on the backburner, driving the price of oil back above the $40 per barrel mark at one point in the session.
Metals prices rose in tandem, pushing up the London-listed mining issues.
Cairn Energy, the India-focused oil & gas prospector, was the strongest among the oil issues, gaining 7.09 per cent or 134p to 2025p.
In the mining sector, Vedanta Resources fared the best, advancing to 652p, up 6.89 per cent or 42p. The Eurasian Natural Resources Corporation was up 6.24 per cent or 19p at 323.25p, while its compatriot Kazakhmys climbed to 232.75p, up 5.56 per cent or 12.25p.
Overall, it was an unremarkable session, with a less than 500 million shares changing hands on the FTSE 100, compared with an average of over one billion in the week before Christmas. The strength in the resource stocks lifted the benchmark index to 4319.35, up 102.76 points, while the FTSE 250 advanced to 6350.56, up 34.74 points.
The retail sector was mixed as investors awaited updates on the Christmas trading period. DSG International, up 2.94 per cent or 0.5p at 17.5p, and Kesa Electricals, up 4.11 per cent or 3.5p at 88.75p, were boosted by bargain-hunters looking to capitalise on recent losses, while Marks & Spencer, down 1.52 per cent or 3.25p at 210p, was sold amid concern about margins and the weak post-sales outlook.
Howard Archer, chief UK economist at IHS Global Insight, said that "once the best of the bargains are gone and consumers have got what they most want or need", retailers were likely to face a "desperately difficult 2009".
"Consumers face very serious headwinds that will substantially limit their spending over the coming months despite more competitive pricing by shops, the VAT cut and lower interest rates," he said.
Fears for the retail sector also bore on Liberty International, the commercial property group, which fell to 469.75p, down 6.05 per cent or 30.25p.
Liberty, which owns the Manchester Arndale and the Gateshead MetroCentre among other retail properties, faces the prospect of defaulting tenants as the storm on the high street gathers pace. Tina Cook, analyst at Charles Stanley, said: "Not knowing how many tenants will go bust and the potential impact on cash flow is a cause for concern."
The housing sector fell back after a new report reignited fears about falling house prices. Hometrack said that over December prices were down across 63 per cent of the UK, while the average time to sell a property climbed to 12 weeks, from 8.3 weeks a year ago.
The news depressed sentiment around Redrow, which fell to 168p, down 5.08 per cent or 9p, and Bellway, which retreated to 604p, down 3.75 per cent or 23.5p. Persimmon was down 2.27 per cent or 5.5p at 236.5p.
On the upside, Imperial Energy gained 10p to 1030p. Shareholders have until one o'clock today to give their assent to ONGC Videsh's 1250p per share offer. Given the premium to the current share price, analysts expect the company to achieve the requisite 90 per cent acceptances to approve the offer.
Investec reiterated its "hold" rating on Hays, the staffing group that was up 2.89 per cent or 2p at 71.25p. The broker reduced its profit forecasts for the group, saying that while activity levels across the recruitment sector have already been affected, business looks set to "fall substantially over the next 12 months". "The economic background has worsened considerably in the last few months of 2008 and the outlook for labour markets globally in 2009 is very poor in our view," the broker said, adding: "Whilst Michael Page's trading update earlier this month highlighted the deterioration in the trading environment that has already occurred, worse appears in prospect in 2009."
SVG Capital also recovered from recent lows, gaining 6.92 per cent or 5.5p to 85p. The stock suffered heavy losses earlier this month after the company announced plans to raise £200m and capped its commitment to Permira, the buyout firm in which it is the single largest investor.
Among smaller companies, Entertainment Rights, the children's entertainment group behind the Basil Brush brand, was up 33.33 per cent or 0.15p at 0.6p after confirming early-stage bid talks.Reuse content