Market Report: Demand hopes drive Kazakhmys higher

Hopes of an uptick in China's demand for commodities boosted Kazakhmys, the FTSE 100-listed miner, which last night closed with gains of almost 8 per cent.

The stock was 53p stronger at 716.5p as Barclays Capital highlighted the upside as "green shoots" sprout around the Chinese economy. Demand is expected to outstrip supply as recovery dawns, boosting the likes of Kazakhmys.

"Kazakhmys also has the most leverage to the copper price of all the European companies in our coverage universe (we estimate that a 1 per cent change in the copper price results in a 2 per cent change in Kaz's [earnings]," the broker said, moving the stock to "equal-weight" from "underweight".

In the wider sector, Xstrata gained 9p to 686p following reports that, along with the US coal miner Peabody Energy, it was planning to bid for a majority stake in PT Berau Coal, the Indonesian coal miner.

Overall, the markets were well off the day's highs at the close. The FTSE 100, which raced to a session high of 4,520.82, relaxed to 4,398.68, up 2.19 points, while the FTSE 250, which climbed to 7,995.75 at one point in the day, retreated to 7,784.33, down 86.87 points, after investors, spooked by a lacklustre start on Wall Street, sold out in the final hours of play. The sell-off came about despite generally positive newsflow, both in terms of corporate news and expectations for the results of stress tests on US banks, which were to be released late last night, after London closed.

"Friday sees the release of US unemployment numbers for April and it could well be just an exercise in risk reduction ahead of this major announcement," Tim Hughes, the head of sales trading at IG index, said.

Lloyds Banking Group was the weakest of the blue chips, suffering a bruising decline to 97p, down 14.3 per cent or 16.2p, after confirming market fears by revealing that corporate bad debts were "rising significantly" as the recession unfolds. The news sparked an exodus from the stock, which has rallied sharply in recent months.

Collins Stewart, which moved the stock to "sell" from "hold" in response, said the deteriorating outlook might lead to the Government reworking the terms of the Asset Protection Scheme (APS), which would be a further negative for the share price.

"The £25bn 'first loss piece' will be well over half-consumed before the end of this year," the broker said, "Management insists that there will be no renegotiation on this or [the] 38.43p share issue, but the APS is subject to due diligence and the speed and scale of deterioration means we cannot entirely discount this possibility."

Barclays, which fell to 275.75p, down 4.3 per cent or 12.2p, after positing an update for the first quarter, was also weak as investors focused on the outlook for bad debts, instead of the 15 per hike in profits.

Elsewhere, insurance issues fared better, as investors welcomed news of a stronger capital base at Old Mutual, which was 4.3 per cent or 2.9p ahead at 70p.

In other corporate news, Unilever climbed to second place on the FTSE 100, rising by 9.8 per cent or 129p to 1,443p, after unveiling better than forecast results for the first quarter.

Back on the downside, Man, the hedge-fund group, retreated to 236.75p, down almost 3 per cent or 7p, after Citigroup moved its recommendation on the stock to "hold" from "buy" as it advised investors to bank profits in the asset management sector. "While we believe we are most likely past the worst in terms of falling AUM [assets under management] and associated negative operational leverage impact on earnings, we do not believe we are yet out of the woods on sustainable recovery trajectory," Citi said, also downgrading its stance on Henderson, which was moved to "sell" and fell 6 per cent or 5.75p to 85.75p.

On the second tier, National Express came off the rails, falling to 299.5p, down 9.5 per cent or 31.5p, after the transport group's chief executive was reported to have indicated that while the company was not planning to launch a rights issue at the present time, he would not rule out turning to shareholders in the future.

Rightmove climbed to 339.5p, up almost 2 per cent or 6p, after Panmure Gordon weighed in, moving its target for the real estate website's shares to 400p from 350p. Raising its estimates on the back of the recent interim management statement, the broker said the update marked the "beginning of a new upgrade cycle". Panmure added: "Rightmove has very high returns, both on capital and revenue. Elsewhere, we note increasing second M&A [mergers and acquisitions activity] on very attractive multiples."

Among smaller companies, AIM-listed Metals Exploration eased to 12.5p, down nearly 4 per cent or 0.5p, after raising £12m via placing of new shares at 11.5p apiece. The move is backed by Solomon Capital – the Candy Brothers' investment vehicle – which has committed to take its stake in the business to just over 44 per cent from 29.9 per cent by subscribing for £8m in the placing.