A broker downgrade of Vodafone and weakness among the metals stocks sent London's top stocks tumbling. But PartyGaming beat the trend ahead of today's key debate on the future of internet gambling in the United States.
That came as stock markets worldwide were unsettled by a series of explosions around the city of Mumbai, India's financial hub.
The FTSE 100 index closed lower by 39.6 at 5857.3, a decline of 0.7 per cent, while the broader FTSE 250 eased 69.8 at 9320.3 as technology shares fell out of favour. Paris’s CAC 40 fell 1.4 per cent and Frankfurt’s DAX slipped 1.6 percent.
Across the Atlantic, the Dow Jones Industrial Average retreated 56.2 to 11047.3 after member company Alcoa kicked off the second quarter earnings season with a disappointing set of numbers. The Nasdaq Composite eased 16 to 2100 as technnology companies including communications kit maker Lucent Technologies warned on profits.
On the bond markets, US Treasury debt prices climbed apparently as investors sought safe havens in reaction to the news from Mumbai. Local police said the blasts were caused by bombs across the city's rail network, and that at least 135 people had been killed.
For an overview of world markets, click here.
Back in London, Vodafone lost 2p to 117.75p after UBS moved to "neutral" from "buy". The Swiss broker -- which was sole advisor in Vodafone's recent sale of its Japan unit -- was worried by "the intensifying threat emerging from the three-headed monster of regulation, competition and technological flux".
It told clients: "We see no sign of these trends abating, which, in a mature market and with high returns for leading operators, is likely to drive sustained pressure on earnings."
Some 70 per cent of Vodafone's revenue comes from Europe, and a quarter is derived from regulated sources such as termination charges and international roaming. Tighter regulation in these areas could cut its turnover by 2 per cent per annum over the next three years, UBS calculated, meaning the core outgoing calls business would have to grow at 8 per cent a year on stable profit margins to match the broker's forecasts.
"We believe this is likely to prove tough to achieve with competition unlikely to abate, given smaller operators' urgency for scale, and margin pressure from the move into broadband, for example," UBS argued. It held back from turning more negative because of Vodafone's potential to strip out costs.
For detailed information on Vodafone, click here.
News of the Mumbai blasts created nervousness that put specialist commodity stocks under pressure. India-based Vedanta Resources fell 22p to £13.70 and Kazakhmys, which mines for copper in Kazakhstan, slid 32p to £11.89. Cairn Energy, which plans to float its biggest oilfield on the Indian market within a year, fell 49p to £20.95.
Xstrata outperformed its sector, adding 1p to £20.21 after the Swiss-based group raised its hostile offer for Canadian miner Falconbridge and lowered the number of acceptances needed.
Xstrata lifted its bid Falconbridge by 12 per cent to $16.1 billion for the four-fiths of the group it does not own. It also dropped the minimum number of acceptances to just over 50 per cent of Falconbridge’s shareholders, from the previous bid’s two-thirds requirement.
Last month US-based Phelps Dodge made a friendly $40 billion offer for both Falconbridge and Inco, which had previously agreed an offer for its Canadian peer. That latter bid, which Xstrata has trumped, expires in two days.
For more on the bid, click here.
Power utilities were mixed as the government spelled out its plans for a new generation of nuclear generators but insisted that the private sector would have to fund, construct and operate new plants, including the full cost of decommissioning and long-term waste costs.
The long-awaited Energy Review called nuclear generation an important source of low carbon electricity that would make a significant contribution to meeting the country’s energy policy goals. There was also a renewed commitment to the renewables obligation, a subsidy for wind farms and other renewable energy sources.
British Energy, which has said it is they are prepared to build nuclear power stations without subsidy, slipped 19p to 690p even as it welcomed the review’s findings. Drax, owner of the UK's biggest coal fired power station, drifted 9p to 860.5p. Scottish & Southern Energy, which has taken a lead in developing wind power, added 8p to £11.80.
Heading the loserboard, International Power faded 10.25p to 585p after it issued a €200 million convertible bond, due 2013 at 391p.
For more coverage of the row over nuclear power click here.
Marks & Spencer crept up 2p to 585p after a generally in-line quarterly trading update failed to provide any surprises, although it did raise a few concerns about food. M&S called its performance encouraging, but it conceded that the figures were set against poor numbers a year-ago and conceded that progress may get tougher going forwards.
The retailer, which hosted its annual shareholder meeting today, posted an 8.2 per cent rise in first quarter same store sales. General merchandise up 10.5 per cent and food sales up 5.8 per cent, against market forecasts among the leading analysts of around 10 per cent and 6.3 per cent respectively
"The food like-for-like is slightly disappointing given improved availability and the benefit from Easter and the World Cup. However we don't expect to change estimates too much," said Goldman Sachs. The broker expects like-for-lke growth of 5.3 per cent for general merchandise and 6 per cent for food -- towards the upper end of City projections.
Credit Suisse's team detected "slight disappointment against aggressive expectations in the market" and said the statement continued M&S's "recent trend of indecisive news flow". While it expected consensus forecasts to edge up, it predicted the shares to remain directionless "until some indication of the success of the Autumn/Winter launch becomes apparent."
For more on M&S, click here.
Technology stocks were weak on the second line, with Wolfson Microelectronics sinking 59p to 386.25p as concerns grew that Apple may delay launching new iPod models.
Flash memory prices have collapsed by about a third this week on speculation that Apple could wait until November to release two models of the ubiquitous MP3 player, whose sound chip is designed by Wolfson. The new, higher capacity Nano models had previously been expected by September at the latest.
That was an unsettling rumour ahead of Wolfson's second quarter results, due July 26, when management's third quarter sales guidance is expected to be more important than the historic numbers.
Further setbacks to the technology sector came via the alerts from Lucent and EMC, a US data storage specialist, as well as a revenue warning from TomTom, Europe's leading sat-nav company, and weak figures from LG.Philips LCD, the world's biggest maker of flat-panel screens.
LG.Philips LCD said a stock glut will pressure selling prices another quarter at least, after the worldwide sector failed to get the World Cup boost many had expected. And TomTom's Dutch-listed shares traded lower by 6 per cent after it warned on second quarter sales after a "logistical mishap" reduced supplies of one component.
Bluetooth chip maker CSR, which reveals results the same day as Wolfson, slipped 89p to £11. Arm Holdings, with numbers due the following day, lost 3p to 104p as SocGen pared forecasts to reflect recent moves by the dollar against sterling. (Arm reports results in pounds but generates most of its revenue in dollars.)
Track today's trading by industry sector here.
PartyGaming was an unexpected leader on the blue chip board got much of the session, before it reversed in late deals to close lower by 0.25p at 105.75p. The US Congress today votes on an Internet Gambling Prohibition and Enforcement Act, which proposes to block money transfers to internet gaming sites. PartyGaming last year took 84 per cent of its net Gaming revenue from the US.
Representatives Bob Goodlatte and Jim Leach agreed last week to merge their separate prohibition proposals, a move that industry watchers believe makes it much more likely that Congress will give approval to the bill. PartyGaming shares have dropped 30 per cent since early May, unsettled by share sales by its directors and founders in the run-up to the vote.
"We believe that there is a high probability that Congress, with an eye to November’s mid term elections, will approve the prohibition proposals but that it will then become bogged down in Senate," said ABN Amro, which repeated "buy" advice. It expected Senate to concur with the American Gaming Association, which has been calling for an independent study into regulation rather than prohibition.
HSBC argued that shares are looking oversold no matter what happens across the pond. Analyst Richard Wainright raised his rating on PartyGaming to "overweight" from "neutral", saying the stock "offers an attractive valuation and support from the dividend yield with growth still in place." He kept a price target of 144p, which includes a 20 per cent discount to reflect the US risk.
On HSBC's figures, PartyGaming started the day on earnings ratios of just 11.6 and 10.0 times for this year and next, and provide prospective dividend yields of 5.8 per cent and 3.9 per cent. That compares to the FTSE 100 average or 12 times earnings for 2006 and a 3.9 per cent yield.
Also on broker watch:
UBS cut EasyJet to "neutral" from "buy" and started coverage of Charlemagne Capital with a "buy" rating and target of 95p.
Panmure Gordon upgraded British Airways, Whitbread and SIG to "buy" from "hold". Xaar went the opposite way.
Peel Hunt raised Ricardo to "buy" from "hold" and lifted N Brown to "buy" from "add".
Altium cut Xaar to "reduce" from "hold".
And Deutsche Bank rated Standard Life "hold" in new coverage, with a 251p target price.
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