Market Report: Summer holidays end as miners and banks weigh

The top tier's winning streak finally came to an end after seven days of gains. The FTSE 100 gave up 31.3 points to 5,407.8 as it was dragged down by uncertainty surrounding the banks as well as pressure on the miners. IG Index sales trader Will Hedden said the fall of the blue chips "marked the end of summer," adding that after taking a fresh look at the state of the markets "traders have clearly elected to start booking profits".

The miners opened badly following news from Australia that the Prime Minister, Julia Gillard, had managed to form a government, paving the way for the controversial resource tax to go ahead. While stocks across the sector suffered, the Evolution Securities analyst Charles Kernot focused on Rio Tinto, saying: "As yet we have not fully factored the levy into our earnings forecasts." The note downgraded Rio from "add" to "neutral" as the shares fell 62.5p to 3447.5p.

Cable & Wireless Worldwide (CWW) shares continued their rollercoaster ride yesterday. But if takeover talk had given it a lift, cold water on the speculation sent it crashing yesterday. The stock fell 2.65p to 70.10p, propelling it through the trapdoor of the FTSE 100 with the index reshuffle decided after the close. It plunged yesterday after Citi released a note saying one of the rumoured suitors, Singapore Telecommunications, was unlikely to bid. Analyst Arthur Pineda said: "SingTel had clarified its preference to focus on acquisitions in the Asia Pacific region where it can build scale and drive revenue growth via penetration."

Hedge fund giant Man Group had also seen some bid speculation in the past week – hardly alone on the top tier – and it was vying with CWW for the wooden spoon on the day's trading. After five days of straight rises, which brought the stock to more than two-month highs, the profit-takers piled in, and it closed down 9.7p at 225.7p. This despite market sources remaining adamant that Bank of New York/Mellon were interested.

Banks were in focus yesterday with several high-profile moves, as well as reports that stress tests by European regulators may not have fully revealed the risky government debt on a few balance sheets. Barclays was among those mentioned, but what really grabbed the headlines was news that the UK group had appointed Bob Diamond, head of its investment banking arm, to replace the group chief executive, John Varley, next year. As the shares fell 8.8p to 314p, market experts put the decline down to uncertainty in the sector, rather than the rise of Mr Diamond.

Over at rival HSBC, it emerged that the chairman, Stephen Green, was set to move to the Government as Trade minister. Shares in the bank fell 0.4p to 662.4p.

There were few stocks looking strong during yesterday's session, but the soaraway winner was Invensys. The engineering group rose 18.6p to 269.2p as reports emerged that rivals including Switzerland's ABB, Siemens and the US giant General Electric may be interesting in targeting the stock whose value had fallen a third since April. The rumour mill said the price was likely to be somewhere between 350p and 400p per share.

There was further interest in Tullow Oil a day after bid rumours broke. Talk on the City floors was that the stock was in the crosshairs of potential bidders from China. It rose a further 46p yesterday to 1228p.

A Citi note splashing around in the water stocks sent Severn Trent up 32p to 1365p. Analyst Peter Atherton said the sector's defensive stocks offered attractive dividend yields related to government bonds. He backed Severn particularly as he expects its lower forecast net debt growth to drive a strong share valuation. Citi lifted its target price to 1475p from 1240p.

On the mid tier, it was a bad day for the UK banknote printer De La Rue. It fell 22.5p to 681p after admitting that it faced a £35m hit and a potential inquiry after some staff "deliberately falsified certain paper speculation test certificates for a limited number of customers".

It was by no means the worst performer. That (dis)honour went to Xchanging, which offers processing services to the banking and insurance industries. The group fell 9.1p to 129.1p after HSBC's analysts cut the stock to "underweight" from "neutral".

On the upside, Ashtead Group rose 1.65p to 93.6p, after strong results in the first quarter. The equipment-hire company reported that profits were up a third as it slashed costs and saw sales rise in North America. This prompted Panmure Gordon to lift its rating to "buy" from "hold". Another sparkling performance came from Gem Diamond, which reported that it had found a 196-carat rough white diamond in Lesotho, whose government owns a 30 per cent stake in the mine. The shares closed up 1.5p at 196.5p.

In the wider market, the biotech group ProStrakan Group had a bad day. Its chief executive quit following manufacturing problems of its skin patch, and delays of its cancer pain drug in the US. Its shares fell by a third to close at 53p, levels not seen for three years.

Elsewhere, the struggling social housing company Connaught requested its stock be suspended, with it set to enter administration today.