Kingfisher suffered its sharpest fall in nearly three months on Tuesday amid fears of a slowdown in the French market.

The DIY retailer slipped 3.4 per cent to 276p after Merrill Lynch moved it from “buy” to “underperform.” Merrill forecast two years of falling like-for-like sales in France, which last year provided half of the group’s earnings and two-thirds of its profit growth.

“Although we think Kingfisher will continue to take market share and to benefit from common sourcing we doubt this will be enough to offset the decline in overall French consumption and the sharp slowdown in the housing market,” Merrill told clients.

The broker also expressed worries that Kingfisher’s return of cash to shareholders would underwhelm. Any news on special dividends or buybacks may have to wait until full-year results in March 2013 and could be smaller than hoped if trading remains weak, it said.

Kingfisher’s balance sheet would support a cash return of between £120m and £150m, which would lift 2015 earnings per share by just 4 per cent, it added.

The wider market was directionless for a third straight day, with the FTSE 100 ending 0.89 points lower at 5,775.71. Volume was about a third below the recent daily average.

Glencore led the FTSE 100 risers, with shares spiking higher by 10p during the closing auction to end up 4.7 per cent at 384p. Dealers initially blamed the move on programme trades ahead of the stock losing rights to its latest dividend, which they said acted to squeeze the thin market.

Xstrata, which was also due to trade ex-dividend on Wednesday, was 1.2 per cent higher at 939.2p.

Other miners slipped with metals prices, which eased for a third straight session. ENRC lost 6 per cent to 318.6p amid continued fears that it may need to pursue a cash call, while Evraz was down 5.2 per cent to 233.9p and Kazakhmys fell 4 per cent to 634p.

Coal miner Bumi lost 4.2 per cent to 340p after its Jakarta-listed affiliate, PT Bumi Resources, reported a worse than expected net debt of more than $4bn. PT Bumi Resources also said it had failed to receive early repayment of a loan to private equity group PT Recapital Asset Management, increasing concerns that it could default on debts next year.

Bumi’s 29.2 per cent stake in PT Bumi Resources represents about two-thirds of the UK group’s net asset value, said JPMorgan Cazenove.

Among the gainers, Reckitt Benckiser crept 0.2 per cent higher to £36.21 after Morgan Stanley revived break-up theories.

Transaction values for generic drugmakers imply that Reckitt’s pharmaceuticals unit would be worth £3bn-£5bn if spun out, against £2.6bn as part of the group, Morgan Stanley said.

ITV rose 1 per cent to 84.4p following “buy” advice from Citigroup.

ITV’s 10 per cent organic revenue growth in the first half made it one of the UK’s fastest-growing media companies, with earnings cushioned from disappointment by self-help measures such as cost cutting, Citi said. It put a 115p target on the stock.

Chemring fell 12.6 per cent to 324p after warning of a delayed contract and a faulty computer system at a Florida subsidiary, which would cut operating profit by £15m or 6p per share. The military equipment maker did not comment on its early-stage talks to be bought by Carlyle.

BTG lost 5.8 per cent to 300.3p after the US regulator refused an application to use its Lemtrada drug for treating multiple sclerosis. Sanofi, which pays BTG a royalty on all Lemtrada sales, said the US Food and Drug Administration had told it to modify the presentation of data.

Having lost 12 per cent in two sessions, Yule Catto rebounded 11.4 per cent to 158p as fears of a second profit warning proved misplaced. The chemicals maker left its 2012 outlook statement unchanged and targeted a 5.5p full-year dividend, towards the upper end of market expectations.

Afren fell 4 per cent to 124.7p, after a downgrade from Credit Suisse, which turned cautious in a sector review that favoured exploration over development.

Cairn Energy lost 4.3 per cent to 283.7p after in-line results were overshadowed by news it was buying an operating stake in frontier exploration acreage offshore Morocco. Cairn’s new partners in Morocco had mixed fortunes, with Serica Energy up 6 per cent to 30.6p and San Leon Energy down 6.1 per cent to 11.6p.

Red Emperor Resources slumped 40 per cent to 4.7p.

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