Retailers were among the worst performers as the London market retreated for a third session.

Next fell 3 per cent to £10.86 as analysts reacted to its first-half profit decline, reported this week.

“Next’s earnings have been defying gravity for the last four years. We don’t think that this can continue,” said Morgan Stanley, which downgraded the stock to “equal weight”.

“Until now, Next has been able to offset negative like-for-like sales via a combination of aggressive space growth, share buybacks and currency-fuelled gross margin increases. Our analysis suggests that these levers have now been pulled and the normal laws of operating leverage will apply going forward.”

The wider retail sector was out of favour after disappointing results from Kingfisher, off 5.4 per cent to 130.1p, and Wm Morrison, down 6.1 per cent to 253¾p.

At the close, the FTSE was off 47.8 points or 0.9 per cent at 5,318.4.

Concern about the stability of Lehman Brothers weighed on UK banks, as
did testimony from Bank of England governors that its special liquidity scheme was an “exceptionally generous” temporary measure.

HBOS closed off 4.3 per cent at 286¾p, Barclays lost 2.3 per cent to 338½p, and Royal Bank of Scotland was down 2.4 per cent to 234¼p.

Mining gained for only the second time in September – its worst month since 1997. Cazenove argued that against the more modest decline in metals prices, the derating looked overdone.

“Our view is that as the copper price starts to find a floor, which we believe it is now doing for a number of reasons, the market’s focus will return to the sector’s attractive cash flow profile, particularly amongst the bulk commodity miners who are beginning to reap the rewards of the huge price increases witnessed at the end of the first half.”

BHP Billiton rose 1.4 per cent to £14.05. In a meeting with Liberum Capital, BHP’s chief commercial officer Alberto Calderon dismissed concerns about a Chinese slowdown and the hurdles facing its bid for Rio Tinto, up 0.2 per cent to £41.58.

“We met a company that is relaxed on the outlook for commodity markets and earnings and confident on reaching a satisfactory regulatory outcome for the Rio bid to the timetable previously outlined to the market,” Liberum analyst Michael Rawlinson said.

Anglo American led the blue-chip risers, up 5.2 per cent to £23.08, while Aquarius Platinum rallied 6.2 per cent to 387¾p after it officially knocked down speculation about a possible joint bid for Lonmin.

Analysts expect Aquarius to favour a union with Johannesburg-listed peer Mvelaphanda Resources.

Investors suspect that Xstrata will formalise its hostile offer for Lonmin ahead of an October deadline, but is more likely to walk away than sweeten its £33-a-share bid. Lonmin was down 4.5 per cent to £29.29 while Xstrata was up 2.3 per cent to £22.75.

BG Group was up 4.3 per cent to £11 after Petrobas, lead partner at its Santos Basin prospect off the shore of Brazil, said it had struck an oil reservoir of 3bn to 4bn barrels.

GlaxoSmithKline weighed on the FTSE 100, losing 2 per cent to £12.54 on a double downgrade from Exane BNP Paribas. The broker cited the stock’s recent outperformance and little room for positive pipeline surprises as it moved to “underperform”. Glaxo was on a list of potential bidders for ImClone, the US biotech company.

Smiths Group rose 3.7 per cent to £10.63, bouncing from a two-month low. The engineer posts full-year results in a fortnight, putting the focus again on whether chief executive Philip Bowman will pursue a break-up.

Northgate led the FTSE 250 fallers after UBS, its joint house broker, cut forecasts to reflect falling used van prices.

Northgate fell 10.2 per cent to 318¾p. The vehicle rental firm is due to give a trading update and may give detail on more than £600m of debt up for refinancing in January 2010.

Michael Page fell 3.1 per cent to 310p after the death of Adecco chairman Klaus Jacobs. Adecco, which has had two bid approaches rejected by Michael Page, has until the end of September to make a formal offer or walk away.

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