Market Report: Miners salvage FTSE 100 from BP slump

There was a gargantuan struggle for direction on the FTSE 100 between two of the index's big guns. While oil was on a downward spiral, the miners saved the day, with the top tier closing up 35.9 points at 5,283.31.

The mining groups were helped up by Rio Tinto, which received backing from the US broker Citigroup. The analyst Johan Rode said the share price correction and upgrades to iron ore prices means that Rio is now trading on "an attractive" nine times estimated price to 2011 earnings. "We like Rio for its strong cash generation in iron ore and copper, its balance sheet deleveraging potential and its growth optionality". Rio was dancing on the sand as its shares gained 108p to close at 3296.25p. The Kazakhstan mining group Eurasian Natural Resources Corporation proved the top blue-chip performer at the end of the day, rising 43p to 977p, while Anglo American also rose, up 77p to 2456p, after backing from SocGen.

Coal was very much in favour, with Coal of Africa blazing 27.7p, or 23 per cent, higher to 146.75p as the South African Department of Mineral Resources granted it mining rights. Others included GCM Resources, a Bangladesh play, up 13 per cent, or 12p, to 102p. Caledon Resources, which is dual listed on Aim and the Australian Securities Exchange, rose 2p to 42p.

The banks also had another positive session, with Royal Bank of Scotland rising 1.29p to 36.1p, followed by Barclays up 7.45p to 289.65p. One sales trader said: "It's just a sentiment thing. People have stopped punishing the banks, as they are working on getting their balance sheets in order."

BP set the tone for the morning, dragging everything down as it released weaker than expected numbers. The group, headed by Tony Hayward, revealed that replacement cost profits rose 33 per cent in the fourth quarter to $3.45bn, missing analyst expectations because of issues at its refining business. Full-year profits at the group fell 45 per cent to $13.96bn. To add to the air of dudgeon, Mr Hayward said that output would probably fall this year, the recovery from the recession would be "slow and gradual", and refining margins would remain under pressure. The shares plunged to the lowest on the FTSE 350, down 22.6p to 572p. All eyes will be on Royal Dutch Shell when it reports on Thursday.

The water stocks all shuddered into reverse yesterday as the takeover euphoria of Monday evaporated. Three utilities nosedived, with Pennon Group the worst, falling 10.5p to 529.5p. On the second tier, investors felt it was a good time to lock in profits at Northumbrian Water Group. The best FTSE 250 performer on Monday was the worst on Tuesday, although it only gave up 2.6 per cent of the previous session's almost 12 per cent rise. It closed down 7.7p at 281.3p.

Household products group Reckitt Benckiser was brought low by a note from Credit Suisse, falling 18p to 3233p. The company, whose products range from Finish and Cillit Bang to Nurofen, had no small headache from the note which said it looked to be in "the most expensive consumer staples group to us. Though Reckitt may be the best value in the sub-sector, a 'neutral' rating looks more appropriate for now". This was cut from "outperform" although the target price of 3,350 was left unchanged. The stock pitted Credit Suisse against its local rival as analysts at UBS maintained their recommended "buy" rating and upped the target price from 3300p to 3600p.

The market also turned against some of the larger insurance stocks with Legal & General the worst performer, closing down 1.35p to 78p.

On the second tier, the pubs were toasting again after a tough previous session. Bank of America Merrill Lynch said in a note that the "pub stocks are back on investor radars" and went on to list its reasons for this optimism, including recovering sales and reduced debt. Its support of Marston's as an attractive recovery play sent the shares to the top of the second tier, before it slid slightly, closing up 4.5p to 90.5p. The broker also said Enterprise Inns could start paying dividends again next year, and its shares rose 5.9p to 127.3p despite a downgrade from S&P. The rating agency said Enterprise's increase in leverage and cyclical pressures on the earnings drove the cut to BB- from BB.

Also up was Babcock International, which rose 31.5p to 592p after pleasing investors with a trading update. The engineer, which traces back its heritage to over a century ago, said its marine and defence businesses had been particularly robust. It also announced another order from the Ministry of Defence for its Jackal 2 vehicles and said the order book was stable at £6bn.

At the other end of the mid-tier, Shanks Group was not looking so solid after unveiling an interim management statement of its own. The waste management firm's shares were mired as the group warned on full-year profits. Although the management added that talks over a possible sale were ongoing. It fell 2.9p to 124p.

In the wider market, Songbird Estates, the owner of much of Canary Wharf, was in focus yesterday. Gossips pointed to recent stake-building in the company, adding that there were rumours of a potential takeover bid. Evolution Securities also slapped a "buy" rating on the stock with a target price of 185p, sending it up 5.75p to 169.75p.