Market Report: Rumours mount that Next is lining up warning

Rumours about an imminent profits warning from Next are gathering momentum in the market, before what some are predicting could be the worst festive season for retailers for more than 20 years.

Citigroup and Seymour Pierce have both downgraded the shares in recent weeks and the talk among analysts is that a flat Christmas would be a good result for Next, down another 20p at 1,730p. Given that other high street staples are all experiencing a very tough trading environment, it would not come as a surprise to find that Next is also struggling. Although the company has consistently denied that its performance is short of market expectations, the shares have fallen more than 10 per cent in the last month and traders remain happier on the sidelines.

The new trend for investment banks to go public with their corporate activity suggestions carried on as Merrill Lynch, the US investment bank, told clients it believes Bank of America is "very interested" in acquiring Barclays. Takeover rumours have done the rounds at Barclays time and time again but yesterday was the first time a major investment bank has gone on the record to endorse that view. Merrill reiterates its "buy" recommendation on Barclays shares with a 903p price target as the shares closed 23p better at a new high of 730p with more than 109 million shares changing hands.

Mining stocks had a good week but were out of favour yesterday as metal futures prices took a tumble. The top five fallers in the top flight were all mining stocks, with copper specialists Antofagasta 22.75p worse at 517.5p, Vedanta Resources 72p lower at 1,241p and Kazakhmys, off 37p at 1,160p, the worst hit as Merrill Lynch published a bearish note on the copper sector.

Tobacco stocks were also out of favour, perhaps not surprisingly after the stellar gains sparked by Japan Tobacco's bid for Gallaher on Wednesday. Traders were happy to take some gains off the table before the weekend, with Gallaher down 18p at 1,172p and Imperial Tobacco off 30p at 2,049p.

London shares closed the week on another positive note, driven higher by demand for banking stocks and strong corporate newsflow. The FTSE 100 ended 20.9 better at 6152.4.

Woolworths, the struggling high street retailer that warned on profits on Monday, was strongly ahead on Thursday on rumours that Icelandic backer Baugur is considering making a full bid for the group. Those rumours did not last long, and the word in the market yesterday was that short sellers were taking advantage of the spike in the price to increase positions. Woolworths closed 2.75p lower at 34.75p.

Traders are expecting confirmation that Forth Ports is in takeover talks over the next few days. Broker UBS upgraded the UK's last independent port operator to neutral yesterday, despite the Swiss bank slashing earnings forecasts for the current year by 26 per cent and for 2007 by 29 per cent. UBS upped its target price to 2,175p, but as the stock closed at 2,195p, 85p better, presumably UBS will be reverting to "reduce" again sooner rather than later.

Next week's trading update from PartyGaming, the online gambling group, is unlikely to contain too many surprises. That said, the possible entry of Las Vegas Sands into the sector is still spooking investors, some of whom are convinced that US regulations curbing the industry will not be enforceable. With few consolidation rumours doing the rounds there seems to be little enthusiasm for the stock at the moment as the shares closed 1.25p worse at 28.75p. Rival 888 Holdings remains strong in comparison and closed 3.5p better at 132p.

In the small caps, investors are fearing the worst for Legacy Distribution - the shares were suspended after trading 9.75p worse, a fall of more than 90 per cent. The suspension was accompanied by the dreaded "pending clarification of the group's financial status" announcement, a sign usually taken by traders to mean the company is in its death throes. Investors will look back in anger at September's trading statement. In it, chief executive Frank Patton said: "We continue to make solid progress across all aspects of the business and I look forward to the future with confidence."

Some might say calling a company Best of the Best is asking for trouble. Trouble duly found its way to the AIM-listed group as it told investors that security issues at airports over the summer will hit full-year results. The shares shed 5p to 47.5p, almost 30 per cent below the level that the stock listed at in August.