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Investors on the London stock market today moved to stop the rot after another big sell-off overnight on Wall Street, which saw shares there slump to their lowest since 1997.
It is feared the worsening banking crisis could lead to a complete nationalisation of the industry on both sides of the Atlantic, destroying shareholder value. City traders today managed to restrict the damage in London, with the FTSE 100 index hovering above 3800 with a fall of just 5.08 points to 3845.65.
Justin Urquhart Stewart, joint founder of Seven Investment Management, warned that a drop below 3800 could spark another series of job losses in the Square Mile.
"Investors are achieving smaller returns on equities, and those sitting mostly on cash hardly any returns at all. That leaves just bonds," he said. "As a result, firms will soon be starting to cut costs again, leading to job losses".
Royal Bank of Scotland posted a rise of 0.3p to 21.5p, spurred on by persistent talk that the bank may be split into two. It could also accrue $500 million (£345 million) from the sale of its operations in Taiwan.
But Invensys dropped 7.3p to 146.1p after Morgan Stanley cut its rating from overweight to underweight. Dana Petroleum surged 41p to 975p after striking it rich at a third well in the Rinnes field in the North Sea. Shares of the oil and gas explorer have been upgraded by Morgan Stanley from equal weight to overweight and has repeated its 1140p target.
It has also repeated its overweight rating on rival Tullow Oil, down 5p at 681p, with a 900p target and says both companies offer the best exposure to short-term news flow. It adds that Dana is targeting additional volumes on the Rinnes structure. But Cairn Energy, down 17p at 1880p, which has been a strong performer of late, has been cut from overweight to equalweight with a 2250p target. The broker says the pricing of Rajasthan crude could just be a short-term headwind, and investors should take a cautious short-term view of UK exploration and production.
Meanwhile, Cazenove warned that the UK market is continuing to lose dividend flow as companies cut payouts to conserve cash and reduce external financing requirements. "We continue to believe that the dividends from the two large oil names - BP and Royal Dutch Shell - are undervalued by the market," the broker said.
Cazenove maintained that BP's dividend is safe - partly because the oil price is now finding a floor at around $40 per barrel and will recover closer to the global marginal cost of extraction of nearer $80 a barrel by 2011.
"We also believe that BP [½p lighter at 453p] can borrow to pay its dividend, as can Shell [up 7p at 1565p] for two years before capital expenditure and cost reductions become more of a necessity," the broker said. Cazenove has repeated its outperform rating on BP and overweight in Shell.
There was no let-up for hard-pressed investors on Wall Street, where there was growing uncertainty over the US banking system. They have drawn scant comfort from news that the government would soon begin assessing the capital needs of major US banks. The Dow ended a gloomy session down 250.89 at 7114.78.
Tokyo shares fell 1.5% to a four-month closing low as Nomura Holdings tumbled, reflecting losses among American banks. Investors mostly shrugged off a comment from Japan's finance minister that the government was studying steps to support the stock market. The Nikkei 225 at one stage fell to 7155.16 - below the 27 October close of 7162.90, which was the lowest finish since October 1982. It eventually ended down 107.60 points at 7268.56.
The Hong Kong market hit a one-month low as new fears about the financial system and tanking commodity prices battered shares. Bucking the downtrend, Hongkong Electric rose 1.2% to HK$47.55 on safe-haven buying. The Hang Seng index closed 376.58 points lower at 12,798.52.
