Oil prices moved higher after OPEC moved to reduce production, adding to concerns about supply after Sunday's exposions at one of Britain's largest fuel depots. There were also reports of a multi-billion dollar American gas sector merger to digest as the City's week got off to a nervy start.
The benchmark FTSE 100 index was lower by 15.9 at 5501.5 at the close, erasing an earlier gain of as much as 31 points. Marks & Spencer was among the gainers as a leading US broker advised clients to switch out of fellow retailer Next, one of the sharpest fallers.
The British market's capitulation came even as Wall Street inched higher, with the Dow Jones Industrial Average adding 13 points to 10,792 in reaction to reports that ConocoPhillips is set to buy Burlington Resources for more than $30 billion.
The takeover would create the second-largest US natural gas producer behind BP, and would be the biggest energy-industry merger since Chevron's $45.8 billion purchase of Texaco in 2001.
In the commodities pits, New York-traded crude for January delivery was ahead around 80 cents at $60.19. At OPEC's meeting in Kuwait, the cartel said it would stick more tightly to production quotas through the winter and was preparing to cut output at the end of January.
Yesterday's explosions at the Buncefield terminal at Hemel Hempstead, north of London, also raised supply concerns, even though authorities assured that the blasts will not lead to a shortage. The depot, owned by Total and Texaco, is the fifth-largest oil storage facility in Britain, holding reserves accounting for about 5 per cent of the country’s oil supply.
"Interruptions to UK fuel supplies appear unlikely from the explosion and any direct costs to Total are not likely to be material. The reputational damage may turn out to be somewhat higher," said analysts at UBS.
In 2001, explosions at a Total chemicals site in Toulouse caused 30 deaths, and the French company was associated with the sinking of Erika, a Maltese-registered tanker that broke in two off the coast of Brittany in 1999.
For more on the explosion, click here.
Among Eurropean oil stocks, BP dropped 9.5p to 630.5p and Shell was easier by 18p to £18.68 on profit taking, and amid talk that the reported Burlington deal could spur the British majors into looking more aggressively for acquisitions. BG Group closed lower by 2.5p to 547.5p.
Total, which said it could not yet estimate the cost of the damage, was off 2.20 euros at 214.80 euros in Paris trading. Another piece of unsettling news for the sector came from Finnish producer Neste Oil, whose shares plunged more than 12 per cent after it warned that a downward trend in refining margins had accelerated during the fourth quarter.
Track today's biggest movers by industry sector here.
Back in London, Marks & Spencer took on 6.5p to 485.5p after analysts at Morgan Stanley raised their rating to "overweight" from "equal-weight".
"Our observations in-store lead us to believe that womenswear and lingerie are both much stronger than one year ago," the broker's (three-quarters female) retail team told clients.
For next year, Morgan Stanley noted M&S has plans to enhance its menswear and childrenswear ranges, which have so far been losing market share because of poor stock control. This should be setting off alarm bells for Next, the team argued.
Morgan Stanley moved to "underweight" on Next, having previously rated the stock "equal-weight". Spending by the firm's comparatively younger customer base is more likely to be hit by higher mortgage payments, it said. The Wall Street broker was also critical of Next's range, saying it is losing the battle for fashionability to the likes of Primark by relying too much on recycling last year's "boho" and "gypsy" themes.
"Safe, middle-of-the-road clothing is not in tune with the way the UK clothing market is developing," Morgan Stanley said.
Next shares were easier by 20p to £15.10.
For detailed information on M&S, click here.
Still in the retail sector, Boots slipped 5.5p to 595.5p on talk that pre-Christmas discounting could suggest the chemist chain is not matching the modest recovery that has been reported elsewhere on the high street.
According to reports, Boots' recent three-for-two offers and use of Clubcard points bonuses has been more aggressive this year than in previous Christmas run-ups. That has led some shareholders of Alliance Unichem (up 13.5p to 768.5p) to question the logic of the groups' proposed £7 billion merger, which was agreed in October.
Click here to read a Sunday Times report about "dire" trading at Boots.
Yell Group climbed 6.5p to 509.25p after the directories publisher last week hosted an upbeat investor day at its American headquarters, at which management underlined that US trading is showing good growth and the British business is holding steady.
Analysts at Cazenove raised a stock rating on Yell to "in-line" from "underperform", said they left the meeting with a "higher degree of confidence" that that the firm's US business will help push forecasts higher in the coming years. The Queen's broker also told clients that the slowing UK economy should not drag on Yell’s UK print business by any more than it already anticipated.
However, Cazenove stopped from a buyer of Yell shares ahead of the Competition Commission's update on the directories industry, due some time next month. This "could be negative for the shares as we see continued regulation of the UK market as the most likely outcome of the investigation," it said.
For detailed information about Yell, click here.
Utilities climbed on speculation that Sweden's Vattenfall could be looking at buying its way into the UK energy market.
Vattenfall, an electricity supplier in in Finland, Germany and Poland as well as its home territory, has reportedly signed up NM Rothschild and McKinsey as advisors for a broad strategic review of the UK utilities. The company was understood not to have defined any specific targets yet.
National Grid took on 7.5p to 552p, while Scottish & Southern Energy gained 11p to 993p. Water utility Kelda added 9.5p to 742.5p.
Track today's biggest movers by industry sector here.
In a light day for corporate news, Lloyds TSB said it is on track to meet analysts’ expectations for the full year, helped by cost controls and robust growth in mortgage lending. Shares of the lender drifted 1.25p to 481.5p.
The UK's No. 5 bank said it expects the bad debt charge for the full year to be at a similar level to the first half, when it stood at 0.63 per cent of average lending. Bad debt charges at the core UK retail bank are expected to rise in the second half, fuelled by an increase in arrears on unsecured borrowing.
Merrill Lynch told clients in an e-mail: "We think this was a mixed trading update from Lloyd's. Investors should be somewhat reassured by news that the bank expects underlying pre-tax profit to be in line with market expectations - however, after many peers have been able to deliver a positive surprise with recent trading updates, this may be considered disappointing."
For more about Lloyds, click here.
PartyGaming was the top blue-chip faller, albeit after a 17 per cent gain on Friday after a better-than-expected trading statement. The shares slipped 3.25p to 134.5p amid takl that Vienna-based Betandwin could be poised to become its closest rival in online gaming with a $591 million bid for Ongame, which owns Pokerroom.com.
Betandwin relies many on its sports book, but has been trying to gain scale in the casino and poker markets. Privately owned Ongame has so far exclusively on poker.
For detailed information about PartyGaming, click here.
GUS was easier by 1.5p to 969p even after investors gave the green light to the company's demerger of its 65 per cent stake in Burberry at today's general meeting.
GUS, which also owns Argos, Homebase and the Experian credit-checking agency, intends to hand out the stock by way of a dividend in specie, which means its owners will get 305 Burberry issues for every 1000 GUS shares held as of tomorrow morning. A share consolidation will take place at the same time to keep GUS trading at about the same level.
While GUS's sales will still be three-quarters retail after the Burberry disposal, the majority of its profits will come from Experian. Profit margins are 6 per cent and 24 per cent respectively, with the credit checking unit also outpacing the contracting retail businesses by growing sales at more than 20 per cent a year on improved margins.
GUS management said in mid-November it would split retail and Experian, but gave no further details.
"Patience will be rewarded," argued SG Securities, which raised its stance to "buy" from "hold" on the theory that Experian is under-rated inside the group. "This is a high-growth, high-margin business, worthy of a high rating in line with its US peer group."
The French broker set a target price of £10.36 for GUS, which includes Experian rated at 18.5 times earnings -- approximately the same ratio awarded to US peers such as Equifax and Acxiom.
For a full diary of this week's events, click here.
Among the midcaps, Intertek was down 32p to 680.5p on concern about competition for Labtest, its testing and inspection unit for consumer products such as textiles, toys and footwear.
Morgan Stanley visited Labtest management last week, as well as garment manufacturers in China and Hong Kong. The broker's analysts said that, while demand for testing is strong, the market is becoming commoditised as competitors copy Labtest’s offering.
"The manufacturing customers we spoke to perceived little difference between Labtest and its major competitors in service or technical competence, although Labtest’s prices remain at a premium to those of its competitors. This leaves Labtest uncomfortably placed," the broker told clients.
Morgan Stanley lower profit margin assumptions for Labtest, which fell through to its Intertek per-share valuation of 695p, down from 815p. The broker also moved to "underweight" from "overweight".
For detailed information on Intertek, click here.
London Stock Exchange drifted 3p at 616p on talk that Macquarie may not increase its bid by too much above last week's offer of 580p per share. According to the Sunday Times, Macquarie will this week return with a £1.6 billion offer funded in part by £1 billion debt package arranged by Dresdner Kleinwort Wasserstein.
(Depending on which newspaper you believe, the Australian bank could keep its bid unchanged, or raise it to 610p, or to 650p, or to 700p.)
For more on the possible bid, click here.
Soco International, the thinly traded oil and gas explorer, added 12p to 785p in choppy trading after a meeting between its management and Seymour Pierce analysts convinced the latter to raise their rating to "outperform".
"We think it likely that the company will be in a position todeliver further good news over the next few months from its drilling programmes in Vietnam and Yemen," Seymour Pierce's team told clients. The Vietnam projects could add 400p to net asset value, currently estimated at 651p, while Yemen wells could be worth more than 100p per share, it said.
For detailed information about Soco, click here.
Group 4 Securicor, the world’s second-largest security services company, lost 9p to 157.25p. The firm said it expects to deliver annual earnings in line with market expectations with all of its business performing "well". In a statement ahead of results due in March, the Anglo-Danish company said organic revenue growth remained at around 7 per cent in the ten months to the end of October.
The shares took a hit after management's conference call, while not revealing anything that was different from expectations, was a bit more cautious in tone than the City would have liked. Of particular concern were a lack of detailed information on cashflow and downbeat comments on manned guarding in Europe, which provides almost a third of group earnings.
"We think the company could be trying to keep the lid on expectations," said Deutsche Bank. "It feels like the risk to estimates has turned negative," added Cazenove, which moved to "underperform" from "in-line" on both Securicor and Swedish peer Securitas.
Track Group 4 shares here.
Further down the market, GW Pharmaceuticals rose 6p to 123.5p after it signed up Spanish group Almirall to market its cannabis-based pain relieving drug Sativex in Europe.
The deal, which excludes the UK, will give cash-strapped GW a "significant share" of long term product revenues and possible milestone payments worth up to £46 million, including a 12 million signing fee.
For detailed information on GW, click here.
The Hemel Hempstead oil explosion caused more disruption to local businesses than it did for the oil internationals, with the blasts forcing four companies into issuing Stock Exchange statements that flagged up the likely disruption. All four said insurance policies should cover the cost.
Northgate Information Solutions said its head office had sustained "significant damage" and it had invoked disaster recovery plans. While the full implications will not be known for several weeks, the IT services group said a £60 million insurance policy should cover rebuilding costs as well as business disruption costs.
"The impact, if any, on new business wins is harder to quantify. But this is a seasonally quiet period in the year and the group should be in better shape for the key March and April period," said ABN Amro, which recommended investors buy on weakness.
There was also warehouse damage for retail website operator ASOS (which stands for "As Seen on Screen" and not, as some heartless traders were suggesting today, "All Smelling of Smoke"). The company asked for trading of its shares to be suspended until it works out the cost.
Brewer Scottish & Newcastle said the main wholesale distribution centre of Waverly TBS, its wine and spirits subsidiary, had incurred "significant asset losses" and "enormous efforts" were being made to avoid losing custom. And DSG International, owner of Dixons and PC World, said its head office will be closed today after being damaged.
Scottish & Newcastle was easier by 2p to 484.5p. DSG inched up 1p to 158.5p and Northgate fell 0.75p to 83p.
Read more about the disruption here.
Do you have a comment to make on the markets? Write to Times Online's Business desk at markets@timesonline.co.uk, where we will publish the most interesting e-mails
This website adheres to the system of self-regulation overseen by the Press Complaints Commission. The PCC takes complaints about the editorial content of publications under the Editors' Code of Practice, a copy of which can be found here.
