Market Report: Good news from Ireland pushes up RBS shares

As fears over Ireland's economic situation escalated, analysts rushed to the rescue of the major banks on this side of the Irish Sea, downplaying investors' concerns over any potential fallout.

The banks have been seriously hit recently over worries about their exposure to Ireland, thanks to the country's financial problems. On Thursday, Royal Bank of Scotland – whose Irish unit Ulster Bank has close to £800m of impairments – saw its share price drop 2.7 per cent.

Yet it was a different story yesterday. A note from Bank of America Merrill Lynch entitled "Irish concerns look over done" acted as a catalyst, according to traders, alongside what one described as "good noises" emerging from the G20 summit over support for Ireland. It was enough to ensure that RBS ended up as one of the day's most impressive performers, climbing 0.89p to 41.91p.

In the note, the broker said that RBS's shares have plummeted nearly 20 per cent in around two months, cutting around £11bn off the bank's market cap. This level of destruction, it stated, "assumes 40 per cent of the book is written off and a 50 per cent haircut is suffered on the [less than] £1bn sovereign exposure, effectively wiping out [two times] the equity in Ulster," an outlook it described as "very harsh".

BofA Merrill Lynch also calmed the waters around Lloyds Banking Group, which has £27bn of unresolved Irish loans. Despite this, the broker believed the bear case was "baked in" and kept the bank as a "key pick". Lloyds was also helped by Nomura, which called it "the most attractive UK domestic banking recovery name," and it dutifully responded to the positive sentiments, gaining 0.98p to 69.57p.

Overall the FTSE 100 finished on 5,796.87 points, a fall of 18.36, at the end of a week in which it reached as high as 5,875.19. As well as fears over Ireland, the market was dampened by speculation that China may raise interest rates, and as commodity prices fell, the miners suffered.

Kazakhmys was the worst-hit of both the sector and the top-tier index, dipping 53p to 1,498p. Close by was Xstrata, as good news from Australia was unable to prevent the coal miner shedding 38.5p to 1,380.5p. The Queensland state government has given environmental clearance for the company's Wandoan mine, which is expected to start production in 2014, although it still requires the nod from federal level.

Claiming the top position was Rolls-Royce, which will be hoping that a corner has been turned after the announcement that the fault that caused its engine to fail in a Qantas plane has been identified. The under-fire engineering giant said that the faulty component will be fixed, although it warned that this will result in its profit growth for the year slowing.

Still, investors clearly believed that this was the beginning of the end of what has been a tumultuous period of trading for the company. "Clarity is a positive and we continue to believe the group has strong long term prospects," said Investec.

The retailers suffered a tough morning off the back of poor sales figures from John Lewis, which IHS Global Insight's Howard Archer said were "likely to increase the nervousness of retailers as the critical Christmas sales season looms". However, by the end of the day things did not look too bad, with Next and Marks & Spencer both closing up, having moved 14p to 2,142p and 2p to 393.2p respectively.

On the FTSE 250, the race for the wooden spoon was not even close, as Imagination Technologies shed more than 10 per cent of its price. The fall came after a video emerged online that seemed to confirm, according to Evolution Securities' Philip Sparks, previous speculation that Samsung had chosen Arm to provide graphics for its new Orion processor chip.

"Assuming that the report is accurate, this is a blow for Imagination," said Mr Sparks. "Samsung Mobile (the most likely launch customer for the Orion chip) is currently Imagination's leading customer among Android handset makers." The market looked like it agreed with the analyst's interpretation of the clip, and Imagination retreated 41.2p to 362.3p.

Going the opposite direction was Electrocomponents, which at one point managed to touch its highest share price for three years after it revealed an impressive rise in pre-tax profit. The electronics supplier upped its forecast for the full-year, and, despite settling down later in the session, still added 11.9p to 259.8p.

Down among the small-caps, the toy maker Hornby – the model railway enthusiasts' favourite – jumped 7p to 150.5p after an update. The company, which also owns the Scalextric and Airfix brands, said that it was making "encouraging progress" as turnover improved, with Frank Martin, its chief executive, claiming it was "well placed" in the run-up to Christmas.

Meanwhile, JJB Sports' woes continued after Thursday's profit warning, and yesterday it was down another 1.18p, closing on 6.82p.

FTSE 100 Risers

3i Group 320.5p (up 4.4p, 1.39 per cent)

Dutch private equity firm Unitas Capital announces interest in 3i's pump maker unit, Hyva.

Centrica 340.2p (up 4.2p, 1.25 per cent)

Owner of British Gas benefits from decision to hit customers with seven per cent price rises.

Serco Group 563p (up 4p, 0.72 per cent)

Agrees deal with UK Government over making savings on a number of its contracts.

FTSE 100 Fallers

Antofagasta 1,432p (down 40p, 2.72 per cent)

One of a number of miners to fall yesterday as commodity prices moved downwards.

Essar Energy 523p (down 7.5p, 1.41 per cent)

Drops despite third-quarter results showing rises in both refining margins and retail sales.

Petrofac 1,493p (down 26p, 1.71 per cent)

Announcement of three-year contract with Maersk Oil can't prevent its price sliding.

FTSE 250 Risers

Supergroup 1,419p (up 69p, 5.11 per cent)

Owner of Superdry brand continues to rise after Goldman Sachs placed it on its buy list on Thursday.

Catlin Group 358.2p (up 7.7p, 2.2 per cent)

Mixed update from insurer with number of premiums rising while insurance prices dip.

IMI 826p (up 16.5p, 2.04 per cent)

Brokers keen on engineer, as Panmure, Citigroup and JPMorgan all up their target prices.

FTSE 250 Fallers

Hikma Pharmaceuticals 755p (down 28p, 3.58 per cent)

Latest update forecasts "low double digit" revenue growth for year.

Premier Foods 17.95p (down 0.43p, 2.34 per cent)

Down as Morgan Stanley keeps it at "equal weight" in cautious comment on the sector.

Misys 290.1p (down 5.4p, 1.83 per cent)

IT company falls despite brokers welcoming $600m deal to buy Irish software firm Sophis.