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Market report - afternoon update
Shares went into a nose-dive on both sides of the Atlantic this afternoon as investors continued to fret over the economic slump and banking crisis.
On Wall Street, the Dow tumbled 346.31 points to 8482.73 on the back of a bigger-than-expected drop in November's manufacturing output and construction spending.
City investors also started the week on a drab note following the collapse of London Scottish Bank and crisis talks between New Star Asset Management and its bankers. The FTSE 100 index tumbled 173.99 points to 4114.02 in wafer-thin trading. Fewer than 1.5 billion had changed hands by late afternoon. The Bank of England monetary policy committee is expected to signal another cut in interest rates later this week in a bid to boost the economy.
Brokers take the view that mining shares must be worth a punt because they have already fallen so far this year. But there is little cheer out there at the moment to drive their rating higher.
Take Xstrata, for instance. Shares in the Anglo-Swiss mining giant today fell 100½p to 830p after it, and its joint venture partner Merafe Resources, were forced to shut down five furnaces producing ferrochrome - a key ingredient in the manufacture of stainless steel - because of falling demand. Xstrata has blamed the downturn on the global economic slump.
But Credit Suisse has decided to start pushing former takeover target Rio Tinto, down 129p at 1479p, as its top pick in the sector. It has moved against the grain and resumed coverage with an outperform rating and price target of 2700p following BHP Billiton's decision last week to drop its proposed offer of 6000p a share. Credit Suisse claims Rio's shares have been "massively oversold", and this is arguably the best buying opportunity since October 1997 when they suffered during the Asian crisis.
Credit Suisse has also resumed coverage of BHP, down 98p at 1091p, with an outperform rating and a 12-month target price of 1500p. BHP shares are up about 6% since 20 November.
Société Gé*érale has renewed coverage of BHP with a buy rating and 1500p target, and Rio with a hold rating and 1700p target following the failure of the takeover. It reckons BHP will benefit from its defensive profile while Rio's valuation is now just about right.
Elsewhere in the sector, Investec has cut its target on platinum producer Lonmin, down 147½p at 704½p, from 1100p to 1000p and repeated its hold rating. New chief executive Ian Farmer last month announced initiatives that investec believes should ensure the company "stays alive" in today's horrendous platinum markets.
Mitchells & Butlers fell 18¼p to 144½p. Deutsche Bank has repeated its hold rating on the shares but slashed its target from 315p to 200p in the wake of last week's decision not to pay a dividend, and to cut capital expenditure to conserve cash. Deutsche says the move make sense because of the credit crunch, but the outlook remains uncertain as the economy tips into recession. Punch Taverns fell 16½p to 109p.
Bank of England figures showed mortgage lending collapsed by 70% in October, reaching the second-lowest figure on record. It is not the sort of news housebuilders want to hear. They have already taken big hits to their share prices and balance sheets because of the collapse in the housing market, which has led to big write-offs. Taylor Wimpey dropped 1.74p to 9.26p, Bovis Homes 10p to 304p, Bellway 20¾p to 487¾p and Redrow 9p to 185p.
Land of Leather jumped 2¾p to 9¼p after it admitted it had received a number of takeover approaches.
Petra Diamonds marked time at 73p - a tad above its record low of 70¼p, in the wake of news that its biggest shareholder, Saad Investments, had raised its holding by 1.5 million shares to 79.1 million shares, or 43% of the company.
