Market Report: Manufacturing data produces pain for miners

Commodity stocks continued to ease amid rising concern about the pace of manufacturing growth around the world.

The Eurasian Natural Resources Corporation fell by 43p to 818p, Xstrata was 41p lower at 845.8p, and Kazakhmys closed at 965p, down 29p, following an overnight report on the Chinese manufacturing sector, with the country's official purchasing managers' index (PMI) relaxing from 53.9 in May to 52.1 in June. Though still pointing to growth, the data sparked worries that government moves to tighten policy would weigh on growth – and thus hamper demand for commodities – in coming months.

Closer to home, the Markit/Chartered Institute of Purchasing and Supply manufacturing PMI for June fell to 57.5 from a record high of 58 in May, suggesting that market conditions have passed their peak, while over in the US, the Institute of Supply Management gauge of manufacturing activity fell from 59.7 in May to 56.2 in June, indicating, yet again, that while the sector continued to expand, it was growing at a slower pace than in recent months.

Of the other miners, Rio Tinto lost 64p to 2,904.5p as the worries about manufacturing offset reports that the Australian government, led by the new Prime Minister, Julia Gillard, had struck a compromise over the planned tax on resource-related profits. Local press suggested that the government may have made concessions, boosting hopes for the likes of Rio and BHP Billiton, which was down 60p to 1,694.5p.

The FTSE 100 fell by 2.3 per cent or 111.12 points to 4,805.75, remaining at its lowest level since early September last year, while the FTSE 250 ended 2.4 per cent or 226.47 points weaker at 9,139.65 last night. Only two blue-chips managed to book gains, though the overall losses, which follow the Footsie's worst three-month run since 2002, were limited by news of modest demand for six-day banking funds from the European Central Bank.

Together with the three-month facility auctioned on Wednesday, the take-up by European lenders was lower than feared, and helped to soothe nerves in City dealing rooms. The read-across was not enough, however, with Lloyds shedding 1.49p to 52.21p, Royal Bank of Scotland ending 1.96p behind at 39.47p. HSBC lost 16.1p to 599.1p and Standard Chartered closed at 1,600.5p, down 40.5p, but Barclays was the weakest, losing 15.2p to 255.35p after saying late on Wednesday that investment banking market conditions had weakened over May and June.

Elsewhere, British Land fell by 6.6p to 429p, as the market sell-off offset some bullish comment from the analysts at Panmure Gordon. The broker urged investors to seek property stocks that offer steady sources of income, as valuation yields were likely to make "little by way of progress" over the next two years. British Land, Panmure said, was well placed to benefit from this trend, as "it offers good rental visibility from well-let" assets. "Its assets are let on long leases (average 12.6 years) to a strong and diverse group of tenants. It enjoys high underlying levels of occupancy (97 per cent) and importantly it has few near-term breaks [or] expiries," the broker said, labelling the stock its "key buy" in the sector. Panmure Gordon was altogether more bearish on Capital and Shopping Centres, its "key sell" in the sector, which was 10.3p lower at 301.3p last night.

Further afield, Dana Petroleum overcame the weak market, rallying by 42p to 1,177p amid a revival of bid rumours. Dana is a favourite of the speculators, and has long been pegged as a possible target for a larger peer. The chatter kicked off again yesterday, with the rumour mongers quoting talk of a 1,600p per share offer. No bidders were named, though in the past Dana has been linked to Austria's OMV.

Rathbone Brothers was 4.7 per cent or 37.5p worse off after KBC Peel Hunt warned on the impact of recent equity market falls, which came in the run-up to the wealth manager's quarterly billing date at the end of June. "With interest income already negatively affected by.... low interest rates, fee and commission income is now expected to be lower given the market adjusted level of assets under management," the broker said, switching its stance to "sell", with a revised 745p target price, compared to 805p previously.

Also on the downside, Berkeley managed to firm 6p to 769.5p, but Barratt Developments, down 2.35p at 92.45p, and Bovis Homes, down 10.2p at 335.8p, were pressured as Investec, which recently turned positive on the sector, warned on the short-term outlook. The broker did remain positive on the long-term picture, however, arguing that the housing sector still offered value for "investors taking a three- to five-year view."

"What has become apparent in the past two or three weeks is anecdotal evidence from our non-quoted industry sources that paints a markedly more downbeat picture of the market that the quoted companies' RNS statements," the broker said. "And, in our view, management of the quoted companies sound more nervous in tone in conversation than is immediately apparent in their published statements... We think the sector could weaken further in the short term."