Market Report: No respite for the Footsie as Spain's rating is cut

The London market tried but failed to recover from Tuesday's sharp falls, ending in the red as southern Europe's debt woes intensified last night.

The day began with a sell-off. The FTSE 100 fell to a session low of 5,533.6 in the early hours as traders, still rattled by Tuesday's Greek and Portuguese credit rating downgrades, followed the example set by US and Asian indices. By early afternoon, however, a reversal was in motion, as a number of companies, including Dow Chemical in the US and Royal Dutch Shell closer to home, posted earnings topping analyst hopes and boosting the mood across the City and Wall Street.

Reassurance on the UK's sovereign standing also lured buyers out of hiding. Earlier in the day, Barclays Capital analysts were rumoured to have told clients that the UK was in danger losing its coveted AAA rating, sparking concern across the market. The speculation soon proved unfounded, as Barclays had in fact argued the opposite. "Although there remains a question mark over the UK's sovereign rating, we do not expect a downgrade," Barclays' analyst Simon Hayes said in his latest note to clients. "[The ratings agencies] S&P and Fitch have expressed some concern about the current government plans for fiscal consolidation, but we expect the next government to tighten policy by a little more than is currently projected."

Supportive comments from EU and IMF leaders, who rushed to soothe nerves in dealing rooms around the world, kept the market on a firm footing during the final hours of play. The Footsie steadied and looked to set end the session in the black – until Standard & Poor's downgraded its view on Spain, that is. The agency lowered Spain's credit rating by a notch just as the markets were closing, hitting the mood on the blue chip index, which promptly slipped back into the red, ending 16.91 points behind at 5,586.61. The FTSE 250 was also lower last night, ending 171 points down at 10,299.

Like the wider market, banking stocks endured a tough session. They took an initial hit amid concerns about the sector's exposure to Greece, but pared losses as the FTSE 100 began to recover. A late sell-off ensured that all but HSBC and Standard Chartered, which ended broadly flat at 665.9p, up 0.2p, and 1,735p, up 4p, respectively, closed in negative territory, however. The Royal Bank of Scotland was the weakest, losing 1.05p to 54.95p as traders watched for news from its annual meeting in Edinburgh, while state-backed peer Lloyds Banking Group fell by 1p to 67.17p.

Old Mutual, the Anglo-South African insurer, was among the day's best performers despite some cautious comment from Investec, which switched its view to "hold". The broker welcomed the company's planned debt reduction programme, arguing that the current burden "is too high to be borne by its non-South African business", but said it was "not convinced" that the target will be achieved. "We also remain concerned about the strategic headwinds facing nearly all of Old Mutual's European operations," Investec said, abandoning its "buy" recommendation.

Elsewhere, ARM Holdings was 3.7p lower at 248.1p as investors took profits following well-received quarterly figures on Tuesday. UBS said that while the numbers underscored ARM's strengths, the valuation was full. The broker stuck to its "neutral" stance, as did JP Morgan Cazenove. The latter did highlight the possibility of further gains in the share price, however. Based on recent updates, JP Morgan said that inventories at semiconductor companies remained under control, adding: "Inventory building and thus an end to royalty ... upgrades seems the only way the momentum currently seen in the ARM stock could reduce, unless of course licensing weakens substantially."

Weir, which makes pumps and valves for the mining, oil & gas and power sectors, was 21.5p lower at 982.5p as traders banked profits. The stock has had a stellar run in recent months, swelling by more than 30 per cent since the beginning of the year as investors bought in on recovery hopes. The pullback, then, was not unduly worrying – and, if Citigroup is to believed, may well prove temporary. The broker advised clients to continue piling in, upping the stock to "buy" on the view that Weir was more than a mere play on the recovery.

"We believe that with the 'recovery' trade potentially running out of steam over coming months, the market will start to focus on [the] medium-term growth potential," Citi said, revising its target price for the stock to 1,230p from 750p, and adding that, with the developed world's growth prospects remaining uncertain, the market will turn to the likes of Weir, 45 per of whose sales stem from emerging markets. Citi also highlighted the valuation, with Weir trading in line with pan-European peers.

Further afield, Raymarine, the marine equipment manufacturer, shot up by a whopping 135 per cent or 8.05p to 14p after its US peer Garmin, which was in talks with Raymarine last year, came back with a bid. In a statement posted just before the close, Garmin said it was offering 15p per share in cash for Raymarine, which closed just below the 6p mark on Tuesday.

FTSE 100 Risers

Up: Randgold Resources 5,330p (up 175p, 3.4 per cent) Tracks the gold price, which rises as investors seek safe haven from market turmoil.

Up: Royal Dutch Shell 2,044p (up 46.5p, 2.3 per cent) Strengthens after beats analyst hopes with its first-quarter results.

Up: GlaxoSmithKline 1,217p (up 3p, 0.3 per cent) Better than expected quarterly results; sector gains as traders shun risky investments.

FTSE 250 Risers

Up: Gartmore 164p (up 22p, 15.5 per cent) Suspended fund manager Guillaume Rambourg is reinstated as an investment analyst.

Up: Forth Ports 1,342p (up 99p, 8 per cent) Rallies after turning down a fresh 1,400p per share approach from the Northstream consortium.

Up: Stagecoach 197p (up 2.8p, 1.4 per cent) Strengthens after posting a trading update and reporting that revenue trends are improving.

FTSE 100 Fallers

Down: Whitbread 1,583p (down 40p, 2.5 per cent) Falls back with the wider market before reporting its full-year figures this morning.

Down: Rolls-Royce 576p (down 14p, 2.4per cent) Eases as traders bank profits on the back of an interim management statement.

Down: Barclays 352p (down 5.2p, 1.5 per cent) Banking sector falls out of favour amid concerns about the debt situation in Greece, Portugal and Spain.

FTSE 250 Fallers

Down: 888 Holdings 81.7p (down 12.1p, 12.9 per cent) Cut from "buy" to "hold" at KBC Peel Hunt after news about second-quarter trading disappoints.

Down: Fenner 210p (down 15.8p, 7 per cent) Retreats after raising gross proceeds of approximately £36.3m via a placing of shares at 210p apiece.

Down: Carpetright 860p (down 28p, 3.2 per cent) Year-end pre-close update disappoints; target price reduced from 128p to 115p at Numis.