Market Report: Kazakhmys in spotlight as Footsie falls

The FTSE 100 fell back amid a bout of profit-taking last night but Kazakhmys closed broadly unchanged after an influential broker said the mining group offered the best leverage to stronger economic growth.

Goldman Sachs said the recent array of better-than-expected economic data might mean its own global growth expectations may be underestimating the likely level of activity next year. Copper is the metal most sensitive to a stronger-than-expected economic rebound, with Goldman saying the market looks "tight enough" that if the all-important Chinese economy were to grow by 12.8 per cent next year, rather than 11.8 per cent as economists currently expect, "then inventories could be drawn down to levels that would justify metal prices between $7,000 and $9,000 per tonne".

"We believe an economic recovery, even a lacklustre one, will be enough to drive the copper market into a sustained deficit and return prices close to previous peak levels in 2011 and 2012," the broker said.

It added that Kazakhmys, with its higher cost assets, "should see the largest percentage move in earnings and cash flows" as the copper price moves higher. The company's shares closed the day 3p lower at 897.5p,

Goldman was also positive about Vedanta Resources which, although unsettled by the profit-taking trend, also fared better than much of the wider sector, easing back 12p to 1796p.

Overall, the benchmark FTSE 100 index fell to 4713.97, down almost 1 per cent or 41.49 points, as investors moved to secure gains accrued in the previous two sessions. The oil services group Petrofac, for example, closed 2.6 per cent, or 24p, weaker at 886p, as punters booked profits from the session before, when the stock rallied on news of its inclusion in the MSCI UK index. The mid-cap FTSE 250 index was better placed, firming up by 32.17 points to 8,515.83.

Commercial property plays continued to attract their share of speculators, with British Land swinging to pole position on the benchmark index after a report that a clutch of the world's wealthiest families may be eyeing the group.

Lakshmi Mittal, the Indian steel tycoon, and the Abu Dhabi royals were reported to be interested, along with other, unnamed Indian families. Market sources acknowledged the possibility of interest from the Middle East, but played down the Mittal angle, adding that it was possible that a rival consortium backed by Chinese institutions may yet step in the fray.

Analysts were more cautious, with KBC Peel Hunt analyst John Cahill saying that while there was probably "some basis" to the rumours about Middle Eastern investors, he would be surprised if a deal took place. "Middle Eastern money tends not to buy whole companies, they tend to cherry-pick the assets, it would be unusual for them," he added.

In the wider sector, besides British Land, Land Securities was said to be ripe for an approach, although there were no clues regarding the identity of possible suitors. At the close, British Land was almost 4 per cent, or 19.4p ,ahead at 512.5p. Land Securities, which touched a session high of 669p, ended 4.5p higher at 631p. Liberty International gained 1.7 per cent, or 8.2p, to 487.7p and Hammerson rose to 404.1p, also up 1.7 per cent, or 6.8p.

Further afield, Johnson Matthey, down 2.5 per cent, or 36p, at 1411p, was held back by UBS, which switched its stance on the chemicals group's stock to "sell" in a new sector review. The broker issued "sell" advice on mid-cap peer Victrex, which ended nearly 2 per cent, or 13p, lower at 652p. UBS said Croda International, which is also listed on the second tier, and which was moved from "buy" to "neutral", ranked first in its "chemical pecking order", adding that it preferred Johnson over Victrex.

"All three shares have outperformed their respective indices, and their re-rating implies an imminent earnings recovery in which we put little faith," the broker said, leaving Croda nearly 3 per cent, or 18.5p, weaker at 612.5p.

Elsewhere, Bodycote, the engineering group which does a significant proportion of its business in Europe, surged to 163.4p, up 6.3 per cent, or 9.6p, thanks to recent data indicating a moderation in the recession on the continent.

The housing sector supplemented earlier gains, with punters piling in on hopes of a recovery. As a result, Barratt Developments advanced by 5 per cent, or 11.5p, to 240.1p, while Persimmon rose to 503.5p, up 4.3 per cent, or 20.6p. Redrow was also firm, rising by 0.8p to 199.6p.

Also on the upside, Morgan Stanley aided Firstgroup, which climbed by 3.5 per cent, or 12.5p, to 374p after the broker upped its stance to "overweight", with a 475p target price.

"We think it should benefit most from an uptick in earnings following a disproportionate fall in operating profit due to fuel hedging, and we think the market is applying an unwarranted discount due to financial leverage concerns," the broker said. It said it anticipated the discount to narrow as leverage fell to the sector average, something that Morgan Stanley suggested should be achievable without the need to issue equity.