Market Report: Banks anticipate end of eurozone debt worries

Many of the banks were moving up yesterday as hopes were raised that an end to their worries over sovereign debt in the eurozone could arrive sooner rather than later.

European Union leaders are set to meet next month in Brussels, and Evolution Securities asked whether it could mark "the beginning of the end of the [sovereign] crisis", claiming that it could see the summit producing "substantial progress towards a permanent solution".

The broker's positivity on the issue led it to reiterate its stance on the banking groups as "very bullish", saying that companies in the sector "affected by sovereign concerns are trading artificially, unsustainably below their fair values".

Its analysts' argued that the banks "can rally hard given the slightest relief of sovereign concerns", and there was plenty of evidence to support this yesterday as many in the sector rose following the successful auctions of Spanish and Italian bonds.

Lloyds Banking Group – which Evolution kept as a "top conviction buy" – booked gains of 0.82p to 68.53p, while Barclays and Royal Bank of Scotland were up 3.4p to 306p and 1.43p to 42.63p respectively.

It was not enough, however, to prevent the FTSE 100 declining 26.84 points to 6,023.88 from Wednesday's 31-month high. Neither the Bank of England or European Central Bank produced shocks with their interest rate decisions, but disappointing jobless claims figures from the US did not help sentiment among investors.

Marks & Spencer jumped up 7.4p to 380p as whispers emerged that it could be the target of a takeover bid, with one rumour – dismissed by traders – claiming Sir Philip Green is considering another attempt at buying the retail giant.

Market gossips, however, were more excited over talk of potential interest from the Qatar Investment Authority and a nameless private equity group. There was even speculation that the two may team up, with a price mentioned of 600p a share.

Tesco was left bringing up the rear of the top-tier index following the release of its trading statement for Christmas and the New Year. Investors were disappointed by the UK's biggest supermarket missing its sales forecasts, and it dropped 18.15p to 405.55p.

December's snow was one of the reasons given for the disappointing numbers, yet not everyone was convinced, with ETX Capital's Manoj Ladwa pointing out that this was "the same bad weather that didn't stop Sainsbury's reporting market-beating results [on Wednesday]".

Last month's conditions were also blamed by Dixons Retail in its trading statement, and the electricals chain dropped to the foot of the mid-tier index after losing 24.5p to 278.1p.

Yet it was not all doom and gloom for the retailers. Argos and Homebase owner Home Retail made a move up of more than 10 per cent, adding 21.1p to 227.1p, as it revealed that its sales had not fallen as much as expected. The small-cap group Game was another which managed to better negative forecasts, limiting its decline in sales to 2.1 per cent, and it gained 9.75p to 72p.

Royal Dutch Shell slid back 9.5p to 2,130p as speculation did the rounds that the oil giant was dampening expectations on its earnings.

Reckitt Benckiser shifted down 31p to 3,425p, despite Nomura saying that it was "still not ruling out a tie-up with Colgate". A merger between the two has been talked about before, and the broker commented that "a deal now makes more sense than ever".

On the FTSE 250, Ashtead found itself among the fallers, losing 3.7p to 166.3p as its approach for peer Lavendon was rebuffed. The proposed £189m offer was made with the Belgium company TVH Services, and valued Lavendon at 115p-a-share. The small-cap group described the bid as "opportunistic" and was knocked back 4p to 111.25p.

Provident Financial was 96.5p better off at 999.5p as the subprime lender published an unscheduled trading update in which it revealed that its full-year results should beat forecasts. It also included the announcement of an agreed £100m, 10-year facility with Prudential/M&G that Panmure Gordon said "should resolve much of the market's concerns over [its] funding".

Elsewhere, Filtrona shifted forwards 24.5p to 278.1p after it said it was positive on the outlook for its full-year sales. Meanwhile, Ashmore was lifted 16p to 358.5p as the fund manager had its rating upgraded to "buy" by both Peel Hunt and Evolution Securities, prompted by a 12 per cent increase in itsassets under management.

Clothing website ASOS, which is listed on the Alternative Investment Market, saw a decline of 94p to 1,520p, despite UBS raising the question of whether it could become the subject of a takeover attempt.

The broker's analyst Isabel Green raised the company's target price to 1,650p in part "to reflect the possibility of [it] receiving a bid approach". She added that, in her view, there is "a 15 per cent probability that a bid could be forthcoming".