Market Report: BA suffers turbulence as oil price hits fresh high

The persistent strength in the price of oil, which swung past $126 per barrel yesterday, bore down on British Airways, which fell 10.25p to 228.25p.

A downgrade by Cazenove, whose analysts revised their rating on the stock to "underperform" from "in-line", contributed to the fall. " ... until there is some respite from the relentless rise in the price of oil and/or some greater investor confidence in the outlook for demand, we believe that the sector will struggle to outperform on a six-month view," the broker said.

Cazenove said easyJet, which was moved to "in-line" from "outperform", remains its "favoured pick in the sector". However, it added: "... for the time being, share price performance is in thrall to the oil price and to a general sense that the resilience of forward books must eventually weaken in the face of a slowdown in economic growth in the UK and, eventually, Europe."

EasyJet closed down 15p at 285p.

Elsewhere, stake-building rumours helped Intercontinental Hotels to recover from some early-morning losses: talk of interest from an Indian investor took the stock up by 7.5p to 853.5p.

The rumours did not identify the investor, but traders noted talk that the investor may already have a significant interest in the hotel business.

Overall, the FTSE 100 was down 66.1 at 6,204.7. Weakness among financial stocks, and in the mining sector, where leading shares came off the rally path, kept the index weak.

Kazakhmys, which lost 6.69 per cent or 128p to 1,786p, was the worst off, slumping to second place on the FTSE 100 loser board. The company said it had received an indicative non-binding cash-and-paper proposal from Eurasian Natural Resources Corporation on Thursday, which it had decided to reject. The proposal valued each Kazakhmys share at around 1,550p.

ENRC rose 19p to 1,307p, but, in the wider sector, Anglo American was down 89p at 3,382, Antofagasta lost 32.5p to 777p, BHP Billiton fell 22p to 1,975p and Rio Tinto lost 98p at 6,402p.

Financial stocks were down following overnight news of losses at the insurance giant AIG, which also announced plans to raise capital. Reports suggesting that Citigroup was considering a $400bn (£205bn) sale of certain non-core assets, coupled with vague rumours of a €1bn (£793m) derivatives-related loss at BNP Paribas, also dampened sentiment among banks and insurers.

Aviva lost 8p to 639p, Friends Provident was 1.2p lighter at 117.8p, Old Mutual lost 4.2p to 120.6p and Prudential was down 7p at 702.5p. Among banks, Barclays was 11.5p weaker at 451.5p, Alliance & Leicester was off 9p at 515p and Lloyds TSB lost 10.75p to 433p. HSBC, which was downgraded from "equal-weight" to "under-weight" at Morgan Stanley, shed 15.5p to 866p.

The speciality chemicals group Johnson Matthey lost 41p to 1,916p after Morgan Stanley revised its rating on the stock to "under-weight" from "equal-weight". The broker said that although Johnson remained a "high-growth, high-quality business ... the market is failing to gauge the downside risks to the stock...".

Brokers continued to weigh in on Carphone Warehouse. Citigroup, which maintains a "sell" rating on the stock, said that the company's deal with Best Buy "represents a further step [in its] new broad-based consumer electronics strategy". But it added: "Though the £1.1bn cash injection [from Best Buy] will help pay down net debt, it does not resolve [the company's] cash conversion issues."

Carphone was down 21p at 268p, claiming first place on the loser board, as traders noted that, in addition to cash concerns, some investors remained disappointed that Best Buy was not seeking to buy the whole business.

The hospitality group Whitbread rose 23p to 1,395p after R20, the investment vehicle backed by Robert Tchenguiz, revealed it holds 3 per cent of the company via non-voting contracts-for-differences. Noting that "a Tchenguiz stake is probably not what it was", Blue Oar Securities said if the shares rally due to news of the development it would "be inclined to sell a few".

"Whitbread is a tremendous company and the least Mr Tchenguiz has done is to make an extremely shrewd investment," the broker said.

On the FTSE 250, Bovis Homes was 16p lower at 488p as speculation about an offer from Persimmon – off 35.5p at 604.5p – died down and investors turned their attention to the inflationary pressures borne by the oil price rise. Others in the sector were also off-colour, including Bellway, down 25p at 770p, Redrow, off 11.75p at 290.25p, and Taylor Wimpey, which lost 5.25p to 136.75p.

On AIM, Iofina made its market debut. The company, which owns a large gas and iodine reserve in Montana, USA, raised £15m by placing 27,454,575 shares at a price of 55p per share. Iofina rose 15p to 70p.