Market Report: Markets struggle as recovery fears persist

Recovery fears continued to rattle nerves across the London market last night, briefly driving the bechmark FTSE 100 index below the 5,100 point mark as traders sought cover.

The blue chips touched a session low of 5,070.94 before recovering to 5,109.4, down 46.55 points, as the bears reigned supreme. The mid-cap FTSE 250 index was also held back, shedding 77.35 points to 9,623.56, amid persistent concern about the sustainability of the recovery on both sides of the Atlantic. The fears were supplemented by overnight confirmation of another credit rating downgrade for Ireland, with Standard & Poor's lowering the country's long-term standing by one notch to AA-.

There was more bad news in the afternoon, this time from US. First, official figures evidenced weaker than expected growth in orders for long-lasting manufacturing goods, which in turn pointed to a slowdown in the American manufacturing sector. That was followed by a disappointing report on sales of new US homes, adding to fears about the strength of the American housing market and knocking sentiment on Wall Street.

Elsewhere, the bond markets continued to outperform. Benchmark UK gilts touched fresh lows as investors sought cover in government debt. German bunds and gold prices, which tend to gain ground as traders lose their appetite for riskier investments, also moved higher. At current levels, the FTSE 100 is trading some 12 per cent below its April high, though it is still ahead of the 4,805-point low struck at the beginning of July.

The grim macro outlook was, once again, the main driver in the heavily weighted mining sector. Copper prices continued to soften, weighing on the likes of Antofagasta, which was cut to "neutral" at Goldman Sachs, and which lost 34.5p to 977.5p, and Kazakhmys, which fell by 30p to 1,073p.

Vedanta Resources was also under pressure, easing by 43p to 1,839p a day after the Indian government rejected its plans to mine bauxite in Orissa. In a spot of good news, new reports suggested that, contrary to recent speculation, India's state-backed oil giants weren't planning to counter Vedanta's plans to acquire a controlling stake in Cairn India. London-listed Cairn Energy, which plans to sell the bulk of its majority stake in the Indian oil prospector to Vedanta, booked a creditable performance, edging up by 3.9p to 449.4p last night.

Cairn's peer Tullow Oil was less fortunate, touching a low of 1,182p, down nearly 9 per cent, amid worries that that the development of its Uganda fields could be pushed back owing to an ongoing tax dispute between local authorities and Heritage Oil, the company's former partner, which fell by 14.4p to 305p. Tullow, which closed at 1,238p, down more than 4 per cent or 59p, said it expected a resolution in a matter of weeks.

Back with the miners, and the gold producers African Barrick Gold and Randgold Resources were resilient, closing broadly flat at 567p, down 0.5p, and edging up by 10p to 5,740p respectively. Higher gold prices were the key driver, but the two also received a boost from a World Gold Council report suggesting that demand for the safe haven metal was primed to stay strong throughout the year. Looking back at recent trends, figures showed that gold investment demand had more than doubled over the second quarter of the year.

In the insurance sector, lingering hopes of a deal were largely offset by a general move out of financial stocks. Aviva, for instance, lost 6.6p to 375.3p, while RSA Insurance was 1.1p lower at 122.3p despite JP Morgan Cazenove repeating its "overweight" view on both. Legal & General and Standard Life also failed to make any headway, trading down by 1.35p to 89.4p and by 4.1p to 199p respectively.

In the wider sector, Resolution, the insurance buyout vehicle which acquired Friends Provident last year, fared better, adding 0.9p to 246.6p following a push from UBS. Initiating coverage with a "buy" view, the broker said consolidation in the UK life sector was "long overdue" and that Resolution founder Clive Cowdery's "proven ability to do mergers and acquisitions in the sector will drive healthy returns" for shareholders.

On a more speculative track, the equipment hire group Ashtead was rumoured to have attracted bid interest from buyout groups. The chatter failed to gain any traction, however, with the stock closing at 78.3p, down nearly 5 per cent or 3.95p. Further afield, private equity interest was also mentioned in connection with Garfunkel's and Chiquito-owner Restaurant Group, which nonetheless lost 6.5p to end the session at 241p.

Spirax-sarco engineering stood firm, closing broadly unchanged at 1,562p, down 1p, thanks to support from Panmure Gordon, which upped its target price for the stock to 1,840p from 1,760p. The broker also raised its earnings estimates for the group, citing the recent interim results, which evidenced strong growth in profits. "Spirax-Sarco remains a favoured, high conviction stock pick in the sector... Shareholder returns are being driven by high single-digit revenue growth and by increasing margins," Panmure said, reiterating its "buy" view.