Market report: Monday close

By MICKEY CLARK FOR MAILONLINE
Updated: 11:59 EST, 21 July 2008

The big mining companies were back on the menu for City investors today, enabling blue-chips generally to claw back early losses as the market staged a 79-point turnaround.

Movers: Latest from the stock exchange

At one point, nine of the 10 best performers were miners, which appears encouraging but will not necessarily result in a brighter outlook for the UK economy. Most of the mining companies involved are domiciled in far-flung corners, from Kazakhstan to Chile, and instead are inclined to reflect increased global demand and higher prices for raw materials.

Between them, the miners now account for about 30% of the value of the FTSE 100 index, which retrieved an opening 41.8-point deficit before touching an intraday high of 5445.8. It closed up 19.0 points at 5395.4, partly supported by some better-than-expected second-quarter numbers from Bank of America. The Dow rose 18.5 to 11,515.0.

Among the best-performing miners were the Ukraine-based iron-ore extractor Ferrexpo, up 20½p at 290½p, Lonmin, 121p higher at 2531p, and Indian copper and zinc outfit Vedanta Resources, 69p ahead at 1907p.

It was a busy time for the underwriters of HBOS's £4bn as they worked to clear the backlog of the rump of stock cold-shouldered by shareholders. Just 8.3% of the new shares issued at 275p were taken up, leaving a huge overhang.

The underwriters say much of the issue had been hedged, a tall order in current market conditions. Brokers say the overhang will continue to depress the price, down 17½p at 264½p.

Elsewhere in the banking sector, buying of HSBC in Hong Kong spilled over into London, where the price rose 20½p to 814½p. Weekend reports claim the UK's biggest bank has been in talks with one of the Far East's sovereign wealth funds about taking a stake.

Financial Times publisher Pearson is likely to be a major casualty of the UK economy's lurch towards recession. That is the view of Merrill Lynch, which has slashed its target price for the shares from 855p to 770p. The shares, which started the year at 827p and hit a low of 570p, today fell 11p to 598p.

Merrill says the reduced target is in line with cuts in its forecasts across Pearson's cyclical businesses, which range from Penguin books to educational publishing. It adds that it has made its move in light of deteriorating economic conditions, which have forced it to lower its earnings forecast for 2009 to 52p a share from 55p. It has left its 2008 forecast unchanged on 4912p.

RBS has raised BT Group, 1¾p better at 205¼p, from hold to buy because it thinks the shares are looking cheap ahead of first-quarter results in 10 days' time. Recent share-price weakness was exacerbated by a move to invest £1.5bn in superfast broadband over the next four to five years.

The broker said the market seems to be factoring in the destruction of between £7bn and £8bn of shareholder value, based on its expected cash flows, but it believes that is overly bearish.

Salamander Energy shaded ¼p to 282½p after saying it had spudded its Lumba Lumba-1 exploration well off northeast Borneo. The oil and gas explorer says there are potential reserves of about 200m barrels of oil equivalent. Bid target Imperial Energy, down 6p at 1044p, says the Glukhovskoye 6 well in Russia has struck it rich, and it expects production to begin within the next 18 months.

Mears Group chairman Bob Holt has announced that the social housing group, up 17½p at 276p, has clinched a 10-year, £170m deal with the Metropolitan Housing Trust and Bracknell Forest Homes.

TOMORROW'S AGENDA

• Vodafone delivers a first-quarter trading statement as Vittorio Colao prepares to step into chief executive Arun Sarin's shoes at the end of the month. The phones giant has pledged further expansion in Asia and Africa, but analysts expect revenue growth to slow this year as key markets mature.

• The Treasury Select Committee inquiry on banking reform takes evidence from Bank of England Governor Mervyn King and other officials from the tripartite authorities.

• Enterprise Inns chief executive Ted Tuppen is unlikely to find much cause for cheer when the pub operator updates on trading. The sector is facing tough times, with the smoking ban and falling consumer confidence hitting sales, and costs rising. But Enterprise at least faces a lower corporation tax bill after being given the green light to convert into a real estate investment trust.