Market report: Wednesday close

By ROSAMUND URWIN
Updated: 12:22 EST, 8 October 2008

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Investors in the beleaguered banking sector breathed a small sigh of relief today as HBOS enjoyed a rare day in the sun.

Movers: The focus will be on banks once again

The Halifax owner was the biggest winner among blue-chips, reversing yesterday's mega-losses to trade up 23p at 117p - a rise of over 24½% on the day - as traders reacted to the Government's moves to bolster the banking system, and speculated that its merger with Lloyds TSB was now looking more likely to go ahead.

The gains came despite persistent talk in the City that now the banking deal has been done, barring a further recovery in HBOS' share price, Lloyds, 15½p cheaper at 210p, will try to renegotiate its deal to merge with its rival.

Royal Bank of Scotland, which plummeted 39% yesterday on fears shareholders' investments would be wiped out, clawed back a small gain to trade 0.7p higher at 90.7p. It was the top traded stock - a position normally reserved for mobile phones giant vodafone.

But the banking sector was a curate's egg as rivals continued to suffer. Barclays dived 6¾p to 278¼p while Asia-focused Standard Chartered, which said it has no plans to take Government capital to boost its reserves, sank 151p to 1160p.

HSBC also came under the hammer, down 22¾p at 878¼p. Traders said the contrasting fates reflected the panic surrounding the sector, and the wild fluctuations seen were caused by the pocketing of gains at any opportunity.

After Monday's meltdown and yesterday's roller-coaster ride, the FTSE was in for another mad day. The index was initially down almost 7%, with only HBOS managing to stay in the black, but the emergency rate cut briefly sent shares soaring. The fillip proved shortlived, however, and the Footsie sank back, closing down 238.53 points at 4366.69 - a 5% drop.

Traders expressed their worries over how short-lived the boost was but said bringing forward by 24 hours a rate cut that had already been largely priced into the markets couldn't be expected to leave much of an impression.

In New York, early gains were pared back, and the Dow lost 53.05 points to 9394.06. The Icelandic banking crisis may be a nightmare for the island nation, but it could be good news for your local boozer. That was the verdict of Numis securities after Iranian property tycoon Robert Tchenguiz was forced to exit pubs group Mitchells & Butlers.

After the close of play yesterday, more than 100m shares in the company changed hands as the All Bar one owner's biggest shareholder sold his 25% stake. It comes as a bitter blow for Tchenguiz, who is thought to have bought the shares at around 500p a pop, leaving him with a hole in his pocket just shy of £400m. The buyer was Joe Lewis, the east London-born billionaire who controls Tottenham Hotspur.

The Bahamas-dwelling tax exile will be hoping his gamble on British drinkers' thirst not being quenched by the credit crunch pays off rather better than his bet on US investment banks. He was one of the biggest losers from Bear Stearns' collapse. But the positive broker reception to the news and the rate-cut boost wasn't enough to stop investors calling time on M&B's shares, which have halved in value since February and fell another 8½p to 155p.

But amid all the economic turmoil, brokers are still convinced there are buys to be had. Citigroup has upped its price target for pharmaceuticals giant AstraZeneca from 2582p to 2700p and increased its earnings per share estimates for this year and next.

Despite expectations that its asthma drug Pulmicort will start to lose ground in the US to generic rivals from 2009, the City big-hitter says the traditionally defensive stock should provide a relatively safe haven for investors. But traders shrugged off the optimism, and its shares sank.

Banks in crisis

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Tomorrow's Agenda

All eyes will be on the Bank of England at noon as the monetary policy committee announces its decision on interest rates. Last month, policymakers decided to leave rates on hold at 5% but the deepening financial crisis has led to widespread calls for cuts. Economists and business groups are urging rate-setters to vote for at least a half-point reduction to save the economy from a major recession. Most experts predict the MPC will opt for only a quarter-point cut as inflationary fears continue to weigh on members.

Rival retailers are likely to eye WH Smith's results with envy as chief executive Kate Swann delivers solid full-year figures. Rising sales at the travel division have kept trading on track but analysts have expressed concerns over the slide at its High Street stores. Pre-tax profits are tipped to be just below last year at about £75m - a creditable performance given the consumer spending squeeze.