Market Report: Market falls as investors make room for Shell

By the end of play, the FTSE 100 had eased off more than 0.5 per cent, 28.9 points to 5,230.80, from the 39-month highs it hit on Thursday, as tracker funds moved to sell down other blue-chip holdings, making room for Royal Dutch in their portfolios. The sell-off ensured the FTSE underperformed all its main European rival indices, which closed up for the day.

Meanwhile, Shell and BP had both fallen more than 1 per cent by the close, as investors' reacted to Thursday evening's 4 per cent dive in oil futures. Shell, down 8p to 541p, was hit harder than its larger rival BP, off 7p to 618.5, after JP Morgan reiterated its "underweight" rating on the stock following Thursday's news that the cost of its Sakhalin II project is set to come in about two-thirds higher than originally anticipated. The note said the news casts significant doubts over the economies of the project.

The other major sector in the FTSE 100 ­ the banks ­ also took a hit yesterday, triggered by a string of negative analyst commentary on the sector. Cazenove downgraded Royal Bank of Scotland from "in-line" to "underperform", warning that the group's underlying costs are now growing at the same rate as income. The news knocked the shares as much as 1.7 per cent during the day's trading, but the stock eventually recovered to close down just 15p at 1,753p. Elsewhere, CSFB downgraded RBS's smaller rival HBOS to "neutral" from "overweight", in a particularly bearish note on the sector as a whole. The commentary warned that high levels of consumer debt, coupled with a squeeze on household incomes, were likely to continue to make conditions tough for the banking industry over the coming months. HBOS closed down 7p at 889p.

Another of the day's sharpest large-cap fallers was Amvescap, which shed as much as 5 per cent in early trading on the news that it has appointed a new chief executive to replace its long-standing front man, Charles Brady. Although the new boss, Martin Flanagan, has strong credentials, investors fear that such a decisive move has scuppered the chances of an imminent takeover. Amvescap rejected an approach from CI Financial of Canada 10 days ago, raising hopes that the bid may encourage further offers. It ended at 412.75p, down 3.75p.

In the FTSE 250, which was also off more than 0.5 per cent, 37.9 points to 7,470, for the day, Virgin Mobile was among yesterday's fastest fallers ­ down almost 9.75p to 247.75p after the house broker, Investec, warned the 30 per cent rise in the group's share price in recent months was likely to lead to imminent profit-taking. It reports its first-quarter operating statistics on Tuesday.

Among the small-caps, Scotty Group, the video communications company, gained 0.38p to 1.75p after announcing it had secured a lucrative deal with the Italian helicopter manufacturer Agusta.

Superscape, the virtual reality software company, put on as much as 4.5p in early trading, before closing up 3p at 31.5p in reaction to the news that its management is considering a sale of the company. Electronic Arts, the video games manufacturer, is seen as the most likely potential buyer. EA remained tight-lipped yesterday.

Regal Petroleum, which has been embroiled in a scandal involving its founder and former chief executive, Frank Timis, was another small-cap riser yesterday, gaining 9.5p to 131.5. The rise came in reaction to news that the company is locked in talks with a little-known Scandinavian investor, Hans Raoul Troedsson, who, unbeknown to investors, acquired a call option from Mr Timis to acquire the group's Ukranian gas assets ­ the only profitable part of the company ­ in May. Although the new Regal board had rejected the validity of the option, new hopes of a deal tempted investors to back Regal stock yesterday.

Another racy rumour surrounding White Nile, the Sudan-focused oil explorer. Word in the City yesterday was that Total, the French oil giant, is about to take a stake in the company, with a view to helping fund the development of a massive oil field in the newly autonomous South Sudan.

The deal would certainly be extraordinary, since Total claims that a 20-year-old agreement with the central Sudanese government means it already owns exploration rights that the South Sudanese more recently granted to White Nile. So have the South Sudan authorities decided to bury the hatchet after catching a glimpse of Total's wallet? A peace deal would remove one of the big legal uncertainties hanging over White Nile, whose shares rose 5p to 110p.