Barclays’ shares drop on downgrade

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The FTSE 100 came back to earth with a bump Monday. Unnerved by more gloomy news from the US housing market, the blue chip index closed lower for the first time in six sessions as investors rushed to bank profits made last week.

It finished 47.5 points, 0.7 per cent, lower at 6,291.9, with recent high-fliers such as Prudential, off 2.6 per cent at 723p; Whitbread, 2.5 per cent lower at £18.88; and Antofagasta, 2.3 per cent weaker at 508½p, among the biggest fallers.

Barclays, off 2.2 per cent at 741½p, was hit by profit-taking and a downgrade from James Eden, Dresdner Kleinwort’s banking analyst.

Lowering his rating to “hold”, Mr Eden said the opportunity to buy Barclays shares had passed with last week’s 11 per cent rise and that a bid from Bank of America, that would scupper Barclays’ planned tie-up with ABN Amro of the Netherlands, was unlikely.

The FTSE 250 closed at 11,655.6, down 46.4 points, or 0.4 per cent. Its losses would have been much worse had it not been for gains in the housebuilding sector after Taylor Woodrow, up 13 per cent at 475p, and George Wimpey, 2.8 per cent better at 653p, announced plans to merge.

That news set the sector alight as traders bet on further consolidation. Redrow rose 5.8 per cent to 642p, Bellway advanced 7.4 per cent to £16.25 and Berkeley Group gained 2.8 per cent to £16. Berkeley shares were supported by rumours that it might return £2 a share to investors in July – 18 months ahead of schedule.

By the same token, the FTSE 100 avoided deeper losses because of strength in the heavyweight oil sector. Royal Dutch Shell added 0.4 per cent to £16.77, while BP firmed up 0.2 per cent to 542½p as crude futures touched a high for 2007.

BP drew support from Richard Crossley, technical analyst at Irish stockbroker NCB, who issued a trading alert on the stock. “The worst of an almost two-year bear market probably has now been seen,” he said.

Imperial Tobacco managed to buck the weak market trend. Shares in the cigarette company rose 0.7 per cent to £22.31 after Deutsche Bank upgraded it to “buy”, citing benefits that would arise from the acquisition of Spanish rival Altadis. The broker said Imperial could be a takeover target for Altria, the US owner of Philip Morris, if Altadis were to be acquired by a private equity group.

“We believe that any bid for Imperial would have to be at the £24-£25 level in order to persuade Imperial’s current shareholders to sell,” Deutsche said

Next shares gained 0.1 per cent to £22.28 on rumours that a leading investment bank had joined forces with a private equity group to work on a leveraged buy-out of the FTSE 100 retailer.

Although Next lacks a substantial freehold property portfolio, it is cash-generative and its shares trade at a discount to the sector.

Not everybody was convinced. Sector watchers thought Next’s robust performance could be attributed to last week’s strong results.

J Sainsbury, down 0.2 per cent to 548.5p, put in resilient performance amid reports that Asda was seeking advice on whether a bid for its rival would break competition rules. Separately, a Sainsbury family trust declared the sale of 1.5m shares.

Property groups Hammerson added 0.1 per cent to £17.47 on talk that French rival Unibail was freeing up capital ahead of an acquisition. Monday, Unibail and a Goldman Sachs property fund sold the Coeur Defense office complex in Paris to Lehman Brothers in a €2.1bn (£1.4bn) deal.

In the mid-caps, engineering group FKI, down 0.9 per cent at 111p, was sheltered from the worst of the selling by rumours that buyers were circling its Hardware and Logistex divisions.

Traders said both operations could appeal to Melrose, which last week announced the sale of its aerospace business for $800m (£410m). Melrose shares eased 0.9 per cent to 192p. FKI is scheduled to issue a trading update on Friday.

Countrywide added 0.4 per cent to 596½p as Polygon, the activist hedge fund, was unmasked as the buyer of the 8.8 per cent stake that changed hands on Friday.

The purchase takes Polygon’s interest in Countrywide to nearly 23 per cent and raised concerns that it might try to block the current bid for the estate agent from Apollo. Such talk was played down by sources close to the company.

Rank eased 1.7 per cent to 201p in spite of Ian Burke, chief executive, declaring the purchase of more than 20,000 shares at 199p each.

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