Market Report: Mining sector slumps amid fears of recession

Commodity stocks slumped to fresh lows last night after recessionary fears took root across the London market, sending the FTSE 100 down towards the 4,000-point mark.

The Kazakh mining company Kazakhmys was the worst off, falling 15.49 per cent or 47.25p to 257.25p, after the Bank of England Governor, Mervyn King, said it was likely that Britain was heading into a recession. Meanwhile, its Mexican rival Fresnillo dropped by 14.63 per cent, or 23.4p, to 136.6p and the Anglo-Swiss mining group Xstrata plunged by 13.82 per cent, or 148p, to 923p. BHP Billiton fell by 9 per cent, or 87p, to 880p as it warned of weakening demand from China. Gloomy predictions from economists at UBS, who estimated a slowdown in global economic growth from about 5 per cent in 2007 to 3.7 per cent this year and 2.4 per cent in 2009, also bore on investors, who moved to limit their exposure to commodities.

Besides mining companies, heavyweight oil stocks suffered as oil prices fell amid concern about lower global consumption in the coming months. Royal Dutch Shell was down by more than 4 per cent, or 63p, at 1474p, BP fell by more than 5 per cent, or 25.75p, to close at 442.75p and BG lost more than 6 per cent, or 49.5p, to finish on 764.5p.

The weakness bore on the FTSE 100, which fell 188.84 points to 4,040.89. The FTSE 250 was also down, losing 210.49 points to close at 6,232.62.

Banks remained depressed, with Royal Bank of Scotland falling by 13.87 per cent, or 11p, to 68.3p after analysts at Keefe, Bruyette & Woods slashed their earnings estimates. The broker also reduced its target price for RBS stock from 230p to 85p, estimating 12.6p in earnings per share in 2009 and 13.8p in 2010. In the wider sector, HBOS was down 9.45 per cent, or 7.8p, at 74.7p, Barclays lost 7.42 per cent, or 18p, to close at 224.5p and Lloyds TSB slipped by 3.74 per cent, or 6.5p, to 167.5p amid concerns about the economic outlook, which overshadowed another fall in interbank lend-ing rates.

At the other end of the FTSE 100, British Airways took pole position, rising by 4.3 per cent, or 6.1p, to 148p, after rumours of possible bid interest from Hong Kong's Cathay Pacific. Analysts said that, although such a tie-up was possible, any takeover by a non-EU airline would be complicated by the fact that aviation rights are negotiated bilaterally, based on the ownership of each carrier. "An acquisition by Cathay would alter BA's ownership to non-EU and would therefore require some rights to be renegotiated and cleared," said one analyst. "It is possible but it tells you that this sort of a takeover will be more complicated than usual." If Cathay was to make a move, he added, it was more likely to do so as part of a larger consortium including other European airlines.

On the FTSE 250, relaxed interbank lending rates and hopes of another reduction in interest rates aided the housing sector which, while off the day's highs, managed to hold on to Tuesday's gains. Bovis Homes gained 8.5p to close at 308.25p and Persimmon advanced to 242.25p, up 6p. Taylor Wimpey was also firm, up 0.5p at 12.75, despite a downbeat note from KBC Peel Hunt, which said the business was "being run for the benefit of and in the interests of credits and not shareholders". "There is fear that Taylor Wimpey [could be] pushed into administration – effectively it is already there," the broker said, highlighting the risk that the business might be pressured to repay its bonds and "be unable to draw down the money and thus wound up".

KBC added that if Taylor Wimpey was wound up, its pension fund liabilities might pose a problem. "It could be that the pension scheme payment in the event of a winding-up assumes a position as senior creditor, causing debt-holders and all others to line up behind it to share the spoils," it said.

Mecom, the publisher of European newspapers, slumped by 26.85 per cent, or 1.78p, to 4.85p as the market began to dismiss talk of a takeover bid amid concern about the company's debts. Reports have linked the business with the German media group Axel Springer but last night sources said a takeover of Mecom would be risky given the turbulence in the financial markets and signs of recession.

Among the smaller companies, the property group Carpathian rallied to 25.25p, an increase of 14.77 per cent or 3.25p, after a new shareholder took a 9.94 per cent stake in the company. News of the investment followed the announcement of a strategic review of the business with a view to a possible sale. Carpathian said it had appointed Hawkpoint Partners to assist with the review and Collins Stewart as its nominated adviser and broker. Shares in Collins Stewart fell by 8.68 per cent, or 5.25p, to close at 55.25p.