Marks & Spencer may be forced to halve the final dividend when it delivers full-year results next week as part of a drastic set of measures needed to drag it out of its downward spiral of discounting and under-investment.

At least, that is what one firm of City stockbrokers predicts. Slashing the full-year payment to just 15½p is the lynchpin of a five-point “manifesto” put forward by analysts at Investec which amounts to a damning indictment of Marks' management.

The major thrust of Katharine Wynne and David Jeary's criticism lies in the current trading strategy which has seen Marks, up ¼p at 322p, “too focused” on Primark and Tesco and not enough on traditional customers.

The big danger is that high-profile discounting campaigns are “teaching customers to shop on promotion”. This means prices get locked into an ever-lower “price architecture”.

Investec argues that announcing a dividend cut next Tuesday would demonstrate to investors that M&S understands the pressure on its balance sheet.
Investec also urges M&S to stop developing different store formats and put overseas development on the back-burner.

Finally, Investec wades into the succession debate, calling for an external replacement for Sir Stuart Rose. “We do not see the next CEO as within the ranks,” says the broker, claiming performance by the operational management team over the past 18 months has been less than impressive. A seller, it has downgraded its target to 300p.

Despite a strong opening the FTSE 100 failed to hold on to early gains. Following a brief spurt of activity the index of leading shares was down 30.82 points at 4331.76.

Dealers said the market was sluggish ahead of key inflation data due out in the United States with investors unwilling to push forward.

The unanswered question is whether or not the rally has momentarily stalled and will resume next week or whether it has run out of steam.

Although the FTSE 100 is some 6% up from the lows struck earlier this year, it looks likely to end the week at least 100 points lower than its opening position on Monday. And comments from ratings agency Standard & Poor's managing director Tanya Azarch can't be helping over the water. Musing on the better-than-expected “stress test” results, she said: “Banks are far from recovery, and the banking crisis has merely entered a new phase.”

In London, excitement about a better deal at Barclays saw clear support for the High Street banks with Barclays 11p better at 264p, Royal Bank of Scotland, 0.8p higher at 40.3p and Lloyds Banking Group, 1.7p up at 89.5p.

Similarly, Rio Tinto's renewed commitment to pushing through its tie-up with Chinalco played up the attractions of the miners, with Vedanta 58p stronger at 1310p and Antofagasta 12p ahead at 563½p.

Dealers said investors were piling back into cyclical sectors at the expense of the defensive stocks which had attracted interest earlier in the week.

Tobacco, oil producers and pharmaceutical companies were notably lower; not even orders for millions of swine flu vaccines from a number of European countries, could lift Glaxo, down 6p at 1059p. Shell dropped 25p to 1587p while British American Tobacco lost 24p to 1690p.

Property also took a beating with Hammerson down 8.75p at 277.25p and British Land 11.25p lower at 385.75p. As talk of recovery grows louder, caution is being preached by brokers at HSBC, who conclude that confidence, particularly in the UK mid-cap business services, has risen more quickly, on less evidence, than in previous “recovery” rallies.

They concur that fundamental valuations are appealing but reckon it's too early to rush into many late cyclical business services stocks and on this basis tip Premier Farnell, 4½p higher at 144p, raising the engineer to overweight but run from plumbing supplier Wolseley, 48p lower at 1180p, re-rating it underweight from neutral, and IT recruitment agency Sthree, 15p off at 225p, to neutral from overweight.

Engineer Renishaw, up 25.5p at 405.5p, was the biggest gainer outside the blue-chips after it revealed second-half losses will be lower than it had previously expected.

Meanwhile Greggs, purveyor of pasties and sausage rolls to the masses, jumped 145p to 3824p after UBS rerated it a buy, from neutral.