Copyright 2001 www.ananova.com

[ December 3rd 2001 ]

Leading shares ended a slow session weak although off their worst levels, as stronger than expected US manufacturing data failed to support a Wall Street still fretting over the implications of Enron's collapse, dealers said.

The FTSE 100 index ended down 39.0 points to 5,164.6, having traded in negative territory throughout the session. Its weakest level was just after Wall Street's open, when the index dipped by 51.3 points. All other indices ended negative, while volume was unimpressive with 1.52 billion shares changing hands in 124,977 transactions.

As London traders went home, the Dow Jones Insustrial Average was down 109.29 points to 9740.61, while the Nasdaq composite had dipped 21.92 to 1908.85. The National Association of Purchasing Management's report on November manufacturing activity had helped both indices off their worst levels. It showed a rise to 44.5 from 39.8 in October, surpassing expectations of 42.1, but still indicating a contraction in the sector. Construction spending rose 1.9% in October where a decline had been expected.

The NAPM figures followed the latest personal US spending data, with consumer spending rising a record 2.9% in October. This was also stronger than expected; Wall Street forecasters called for a 2.3% increase. Despite the strong data, London could not cast off its nerves. Banking and other financial stocks were under pressure as jittery investors pulled out fearing exposure to the energy trader Enron's debts.

After Abbey National and Dutch firm ING both laid their cards on the table on Friday - detailing losses running at 115 million and an unsecured $195 million respectively - an alarming Sunday Times report claimed British banks will face losses running into billions. Barclays saw renewed pressure, down 62 pence at 2,088, as fears over its Enron exposure overshadowed its upbeat trading statement earlier - in which it gave no specific details regarding Enron exposure costs, thought to be around 50 million.

Royal Bank of Scotland was a faller, losing 36 at 1,591 after weekend press reports suggested that the firm is understood to have a combined loan exposure of 1 billion to the Enron collapse. Schroders led the fallers with a drop of 56 to 820 while the fund manager announced the rush acquisition of its incoming chief executive Michael Dobson's former company Beaumont Capital Management. The deal, announced last month, will be completed tomorrow.

Asian-banking group Standard Chartered once again managed to buck the poor sector trend, adding 38 to 843 as speculative interest remained following further weekend press reports regarding a likely bid for the group.

Investors also focused on UK energy stocks. Though Centrica warned last Friday its Enron exposure is about 30 million, sector watchers say the exposure of most UK companies is closer to that of International Power, which said earlier it has exposure of less than 2 million. They caution, however, that British Energy its likely to be most exposed since it sells a high percentage of its output through the wholesale market - its shares lost 7 to 236, while International Power was 3-1/4 lower at 204.

But selected utilities stocks managed a convincing rally after their steep declines last week in reaction to Enron's collapse. Scottish & Southern was up 15-1/2 at 631, while Severn Trent rose 14 to 701. Advertising and publishing stocks were among the key mid-cap fallers, impacted by a profits warning from second liner media group Cordiant and mixed comment on advertising. The company indicated that its full year revenues are expected to be 9% lower than last year, which which in turn has dented its full year profit expectations. Furthermore, in response to the revenue shortfall, Cordiant said it is cutting 1,100 jobs.

Predictions by global advertising agency Zeneth Optimedia that advertising expenditure worldwide will fall 6% this year and 1% in 2002 provided an extra drag to the sector. Cordiant shares were off 5-1/2 at 88, while blue chip rival WPP group lost 13-1/2 pence at 671-1/2. Publishing groups were also suffering from the fresh worries raised today over the advertising environment, with blue chip Reed International down 15 at 575, Pearson off 7 at 820, and second liner Emap down 25 to 720.

This put defensive stocks in demand, with tobacco issues well bid. Imperial Tobacco took on 20 at 850 after the Observer reported that the company is poised to launch a 4 billion bid for Reemstma of Germany. British American Tobacco rose 8 to 573, benefiting from news that Merrill Lynch has added the stock to its "Europe 1" list, with the broker also recommending a 'buy' up to 700 pence.

Elsewhere, Marks & Spencer lost 5 to 343-1/2 as two US value funds - the biggest investors in the embattled group - substantially reduced their stakes, the Financial Times reported. According to the report, the sales by Brandes Investment Partners and Franklin Resources involved more than 5% of the shares in Marks & Spencer. It also argued that the move - coming at the end of a year in which M&S shares have outperformed the FTSE 100 index by more than 120% - will be interpreted by some as a sign that M&S' recovery is on track, since both investors specialise in buying shares in companies they believe are undervalued by the markets, before selling when market sentiment turns.

Supermarket chain Safeway gained 11 to 317 after HSBC Securities upped its stance to "hold" from "reduce" on valuation grounds. Regus was the day's biggest FTSE 250 gainer, up 5 at 48 after the serviced office group announced that it has outsourced its information technology needs to three major companies as part of its drive to cut IT costs by 40%.

Meanwhile, transport group Stagecoach rose 4-1/2 to 67-1/2 after unveiling proposals to take over the running of the tracks of its South West Trains franchise from Railtrack. The transport company is due to post its interim figures this Thursday.

Tech stocks were the main features on the downside as Nasdaq slipped back. Innovation Group led the fallers after the chief executive and another board member hedged their holdings in the company. Chief executive officer Rob Terry hedged 1.8 million while fellow director Stephen Scott hedged just over 500,000. With these holdings overhanging the market the stock dipped 30 to 267-1/2.

Elsewhere among digital plays, Eidos slipped 19-1/4 to 217 and RM fell 15 to 225. Manchester United was also defeated, dropping 4-1/2 to 125-1/2 after the football club suffered a 3-0 loss at home to Chelsea on Saturday, further denting the chances of the club retaining their Premiership title.

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