Market update - 30 October

The FTSE 100 gained 85.41 points to 4327.95 and the FSTE 250 was up 300.27 points at 6289.38 at 12.10pm.

Support from the heavyweight mining, oil and oil services issues kept the London market firm. Kazakhmys was the strongest, gaining more than 18 per cent or 49p to 317.5p, after posting an in-line trading statement while oil services specialist Wood Group claimed third place on the FTSE 100, up 14.32 per cent or 29.5p at 235.5p, thanks to a reassuring update from smaller peer Lamprell, which was up 18.41 per cent or 23.75p at 152.75p, and rising oil prices.

Cairn Energy, the India-focused oil & gas explorer and producer, was up 15.53 per cent or 209p at 1555p and miner Vedanta Resources gained 13.66 per cent or 91.5p to 761.5p.

Moving up

Second tier housing stocks rallied amid mounting expectations of an interest rate reduction from the Bank of England next week. The sector was also supported by some positive comment from Cazenove, which upgraded Bellway, up 13.89 per cent or 67.5p at 553.5p, and Persimmon, up 9.76 per cent or 24.5p at 275.5p, to “outperform” from “in-line”.

“The debate on interest rates in the UK has moved on at breakneck speed. Only six months ago, received wisdom was that UK base rate would have to rise to 7 per cent in an attempt to choke off inflation. That same received wisdom is suggesting rates will now fall to possibly 2 per cent to limit recession,” the broker said,

“Over the last six months as that shift in interest rate expectations has occurred, estimates have been reduced, land write-downs have begun to catch up with reality and house price deflation has accelerated. We believe prospects for the industry could be starting to improve or, at least will improve relative to the newsflow elsewhere, as being very early cycle and very battered already becomes a virtue.”

Cazenove added: “We are therefore suggesting it is time to look to invest in the sector. We would avoid financial gearing, look for those companies most capable of continuing to pay dividends and where the operational and financial structure remains in place to benefit from the inevitable upturn in volumes. We believe Bellway and Persimmon would appear to fit these criteria best.”

Moving down

Parts of the insurance sector were weak following a disappointing update from Standard Life, which was down 2 per cent or 4p at 196p, and negative comment from the Royal Bank of Scotland, which moved RSA Insurance, down 3.23 per cent or 4.3p at 129p, to “sell” from “hold”.

“RSA’s share price has held up well against the sector and the general market. Investors seem to have ignored the group’s corporate and Scandi mortgage bonds, and its Baltic and Latin American emerging market exposure,” the broker said,

“Economies, currencies and markets in these regions have taken a serious beating and some banking systems and economies are strong enough to deal with the credit crunch or its recessionary aftermath. In 2007, RSA generated £154m of premium income (3 per cent of total) from the Baltics. Another £350m (6 per cent) of premiums were written in Latin America. The credit spreads on some of the sovereign and corporate debts have widened in anticipation of a material rise in defaults. This is likely to reduce investment returns and slow down the rate of growth in premiums.”