Market Report: Vodafone rises as Footsie breaks 4,900

The telecoms group Vodafone gained ground last night as the FTSE 100 closed at its highest level since early October.

The stock rose after JP Morgan switched its stance on the European telecoms sector to "overweight", saying it offered "rock bottom" valuations relative to the broader market. Moreover, it tends to perform well into the end of the year, and 2009 should be no exception.

"The pushback could be that the hurdle rate for telecom stocks could be higher this year, as we are in the middle of [a] cyclical recovery, where investors will continue rotating into higher beta sectors," the broker said. "We do not see this as an insurmountable obstacle, as in 2003, another year of cyclical recovery, the telecom stocks actually outperformed the strongly rising market in the fourth quarter." Vodafone appears "particularly cheap", the broker added, helping the shares to advance to 134.15p, up 2.4 per cent or 3.1p.

Overall, early strength on Wall Street, where investors welcomed a positive report on US consumer confidence and the news that the US Federal Reserve chairman, Ben Bernanke, had won President's Obama's backing for a second term, rescued the FTSE 100, which spent most of the morning in the red, from negative territory. The index closed above the 4900-point mark for the first time since October, gaining 20.57 points to 4916.8. The mid-cap FTSE 250 index rose to 8860.81, up 28.92 points.

Anthony Grech, market strategist at IG index, said the next barrier for the benchmark was the 5000-point mark. "The question that many are asking at the moment is when will the Footsie break [that key level], and whether it will precipitate another round of profit-taking before the march higher can continue," he said.

The banking sector was mixed. Lloyds was broadly unchanged at 107.83p, down 0.14p, while Standard Chartered ended 2.2 per cent or 32p lower at 1398p amid signs of profit-taking. But Royal Bank of Scotland, up almost 4 per cent or 2p to 53.75p, climbed further past the average price of 50.5p per share that the Government paid for its stake.

The strength soon gave rise to rumours that the group was looking to buy back some of the Treasury's shares. This was played down by traders, who instead highlighted speculation that the group may be looking to buy back some of its debt.

The mining sector underperformed, with trading attributing the weakness to profit-taking. As a result, Kazakhmys, which was among the strongest in the session before, ended as the weakest performer of the day, easing by 3.6 per cent or 35p to 945p. Antofagasta was 3 per cent or 24.5p weaker at 789.5p, while Rio Tinto retreated to 2480.5p, down 1.3 per cent or 33.5p.

Also on the downside, the London Stock Exchange was unsettled, easing by 1.5 per cent or 12.5p to 814.5p despite some words of support from Numis, which moved the stock to "buy" from "hold".

Pointing to investor concerns about the threat of competition in cash equities from multilateral trading firms, the broker said the business models of the MTFs may not be sustainable in the long run "as they continue to operate unprofitably in order to gain market share".

"In our view, the new management team will unveil a strategic plan for the business in the coming months with early indications pointing towards a range of cost-cutting measures, improvements to its own technology and further diversification way from cash equities," Numis added.

On the upside, Bunzl gained 1.2 per cent or 7p to 583.5p as analysts weighed in on its interim results, which were published in the session before. Citigroup raised its target price for the stock to 625p from 535p, while UBS upped its target to 545p from 500p. Goldman Sachs was not as convinced, raising its target to 466p from 444p. "We retain our 'sell' recommendation due to concerns over late cyclicality and [the] potential for continued negative operational gearing," Goldman said.

On the second tier, Morgan Crucible rose to 160.4p, up 6.7 per cent or 10p, after Bank of American-Merrill Lynch moved the stock to "buy" from "underperform" in a capital goods sector review.

"Morgan Crucible [has] lagged peers [in the year to date], underperforming by some 15 per cent, given concerns over its high debt levels and late cycle exposure," the broker said. "We see the cycle turning up from here, at which point the group's debt levels are an attractive feature, offering considerable leveraged equity upside as the group rerates to its historical levels as the debt discount is removed."

Merrill also weighed in on Bodycote, raising its target price for the stock, which is also rated "buy" and climbed to 170.7p, up 3.5 per cent or 5.8p, to 190p from 165p. The broker was less keen on Rotork, which fell to 980p, down 2.4 per cent or 24p after being moved to "underperform" from "neutral". "The group is less exposed to a short cycle recovery that many of its peers," Merrill said.