Market Report: Lloyds fails to save blue chips from insurers

It was a bumpy day for the City, as financial stocks played tug of war with the top tier. Two of the banks were flying, with Lloyds Banking Group topping the blue-chip index throughout the day, closely followed by Barclays.

Lloyds closed up 6.6 per cent at 61.8p as the beleaguered bank moved to bolster its finances. It announced a plan to raise $5bn (£3.4bn) through the sale of a government-guaranteed bond, and also offered investors an exchange of bonds worth £7.5bn that would strengthen its capital buffer. One market source added that some "serious investors" had piled into the stock yesterday as they expected it to go higher.

At the other end of the market, the life insurers dragged the top tier down. Legal & General disappointed shareholders after halving its final dividend to 2.05p a share. Its chief executive Tim Breedon said it was the first dividend cut in living memory, and it prompted Cazenove analyst James Pearce to call the cut "traumatic".

Aviva, which had suffered a plunge in shares after cutting its dividend altogether, fell even lower on the read-across from L&G, as well as it going ex-dividend yesterday. It closed down 11.6 per cent at 236p.

It was not the worst performer of the day. That dubious honour fell to Smiths Group, whose full-year results spooked the market. While they initially did not look bad enough to wipe 12 per cent off the market cap, one analyst said "the devil is in the detail".

The principal detail – along with a fall in underlying profits – was the pension fund deficit spiralling wildly from £11m to £464m, which was blamed on the fall in global equity values. Its debts also increased to £975m, with the company adding the total was unlikely to reduce by year end. Smiths ended down 14.36 per cent at 703.5p.

The market was dragged down again by the big miners in the morning, as commodities suffered from a bout of profit taking. Anglo American was the worst, sinking 3.3 per cent to 1,237p, not helped by a downgrade from RBS analysts. The broker slashed Anglo to sell from hold after a 49 per cent bump in the share price this month. It closed down 4.4 per cent at 1,219p.

The FTSE 100 had showed a brief return to form after Tuesday's retreat, but the good times failed to hold and by mid morning it was down 1 per cent. One trader had called the bounce a "sucker's rally", while another said the market was waiting to edge up "so we can put some shorts on". It closed in slight negative territory, down 11.21 points at 3,900.25.

The stocks in positive territory were a pretty mixed bag, with defensive stocks back on the agenda. National Grid was the pick, rising 3.56 per cent to 553p. One trader said fears of a rights issue had abated, with the market deciding yesterday was a good time to buy after it "massively underperformed" against European peers.

The strongest performers of the FTSE 250 were the oil exploration and production companies. They were driven up by some strong results as well as news that Premier Oil had agreed to buy the North Sea arm of Oilexco. Premier rose 10.82 per cent to 1,055p after announcing the $505m takeover, as well as leap in net profits to $98.3m last year over $39m in 2007. Melrose Resources topped the index at the end of the day after announcing it had swung from a loss in 2007 to a pre-tax profit of $143.3m in 2008.

On the flipside, Tullett Prebon was a victim of its own success as the brokers turned on it. First, Evolution cut its recommendation to reduce, before Citi weighed in with a downgrade from buy to hold. Both backed the company as a stand-out performer, but said the stellar performance was now overdone. It fell 5.2 per cent to 213.25p.

Among the small caps, the market-makers were concentrating on JJB Sports, where the volume was particularly high. "Despite its problems there is a feeling in the market that it will be okay, and will be able to sort their financial issues out," one said. A statement duly arrived in the afternoon as founder Dave Whelan said he had bought the group's fitness clubs, raising hopes that it would survive the downturn. The shares closed up 7.7 per cent at 14p.

Soaring above the rest of the smaller players was Air Partner. The company, which runs private jets, lifted its dividend by 10 per cent, despite a 17 per cent fall in pre-tax profits to £3.2m during the first half of the financial year. The group, whose shares had fallen to five-year lows on Tuesday, closed up 22 per cent at 396p.

At the other end, Dawson Holdings was up the creek for a second day. The group lost 14.7 per cent to 14.5p, as investors continued to head for the exits. This came after rivals John Menzies and Smiths News announced they had won distribution deals for Associated Newspapers from Dawson. Topps Tiles also fell as it said it had not received an approach from Carpetright.

There was bad news for Blacks Leisure, the outdoor clothing and equipment group, as Mike Ashley, the self-proclaimed "balls of steel" chief executive of Sports Direct, walked away from a deal. Lion Capital had also been keen on buying the group, but both bids collapsed yesterday. A black day for the group indeed as the shares spiralled down 16.2 per cent to 32.5p.