Market Report: Liberty undermined by fundraising chatter

Liberty International suffered a bruising fall to the bottom of the benchmark index last night, as speculators anticipated an announcement regarding the commercial landlord's fundraising plans.

Traders have been awaiting a move since last month, when the company said that certain changes to its lending were "contingent on the group raising not less that £350m of additional equity". Although opinion on whether Liberty will opt for a rights issue or a placing with select shareholders remains divided, last night's rumours suggested a firm announcement is around the corner.

Goldman Sachs, which reduced its target price for the stock to 302p from 392p, and Charles Stanley, which downgraded Liberty to "reduce" from "hold", also unsettled the shares, which fell 15.6 per cent or 67.5p to 365.5p.

Overall, the London market tracked Wall Street, which registered fresh losses in early trading as investors sold out on worries about US banks and car makers. The concerns prompted a market-wide round of profit-taking, as traders moved to secure gains from recent rallies, depressing the FTSE 100 to 3,762.9, down 3.4 per cent or 135.9 points, and the FTSE 250 to 6,224.2, down 2 per cent or 127.2 points.

Banks were among the worst performers of the day, with Lloyds Banking Group losing 14 .9 per cent or 11.3p to 64.8p.

Barclays was 14.2 per cent or 24.7p lighter at 149.1p on the back of a report – confirmed after the close – that it had decided to keep away from the Government's asset protection scheme. Worries were heightened by a note from Société Générale, which said that, despite passing the Financial Services Authority's stress test last week, Barclays may need up to £20bn in tangible common equity to "adequately address its excessive leverage and strengthen its relatively weak core Tier 1 capital ratio".

Factoring in £3bn from a potential sale of the iShares business, the broker said Barclays may still have to turn to the Government to plug a "£12bn-£17bn shortfall versus its capital needs". SocGen added: "The UK Government could end up with a 60-67 per cent stake in Barclays. This would trigger a material restructuring of the bank's business model and balance sheet, particularly in relation to Barclays Capital."

Insurers were caught in the downdraft, with Aviva slumping to 202.5p, down almost 14.6 per cent or 34.5p, and Legal & General losing almost 11 per cent or 5p to 41p.

Besides financials, the heavily weighted mining sector also proved a drag on the FTSE 100. Leading stocks fell back as metals prices eased in response to the worldwide sell-off in equities, with Xstrata losing 10.5 per cent or 49.7p to 425p and Anglo American retreating to 1,081p, down 9.5 per cent or 114p.

Defensive stocks dominated the upside, with British American Tobacco gaining 25p to 1,559p and Reckitt Benckiser edging up by 1p to 2,518p. AstraZeneca was the strongest, gaining 3.3 per cent or 77p to 2,352p, after the US Food and Drug Administration said that an experimental diabetes drug being developed by Astra and Bristol-Myers Squibb had met its guidance criteria for heart risk.

Vodafone also managed to buck the market trend, closing at 116.4p, up a slight 0.1p, after Royal Bank of Scotland switched its stance on the mobile group's stock to "buy" from "hold", arguing that the recent share price weakness "looks anomalous".

"Sure, recent European results leave something to be desired, and we remain concerned about margin pressure in India," the broker said. "But management seem more pragmatic about, and committed to, cost cutting and addressing problems head-on."

Elsewhere, the funeral organiser Dignity was 1.5p stronger at 529p after Goldman added the stock to its "conviction buy" list. Anticipating a solid first-quarter earnings report in May, the broker said it expects the shares to strengthen over the next six months as the market gains more confidence in the company's earnings potential.

"We expect the company to continue generating strong cash returns, and to remain comfortably within its debt covenants," Goldman added.

Punch Taverns was among the strongest of the mid-caps, swinging to 49.25p, up more than 5 per cent or 2.5p, after Citigroup upgraded the pub group's stock to a speculative "hold". "A covenant breach scenario leaving the equity worthless is still possible, but we believe the risk of selling Punch shares in the short term is high due to potential catalysts from disposal announcements to fund debt buybacks," the broker said.

"Giles Thorley, CEO, was an aggressive deal maker during the bull market and these skills as a financier will be critical in avoiding a covenant breach," Citigroup added.

Carphone Warehouse, on the other hand, retreated to 120p, down 4.5 per cent or 5.75p, amid reports that it was once again eyeing the UK arm of Tiscali, the Italian broadband operator.

Tate & Lyle was also on the back foot, falling to 253.25p, down 5.5p, after Citi lowered its target price for the shares to 300p from 350p.