Market Report: Trading hopes underpin gains in Marks & Spencer

Marks & Spencer was among the gainers as the FTSE 100 endured a volatile session last night.

The high-street bellwether was 4.2p higher at 388.1p after Société Générale upped its share price target to 545p. JP Morgan Cazenove also weighed in, sticking with its bearish view, but acknowledging that if M&S can keep investors happy with its October trading statement, the shares were unlikely to fall back ahead of the retailer's strategy update in November.

"Marks & Spencer's shares have performed strongly in the last few weeks in anticipation of good trading and improved guidance at the second quarter update [next week]," the broker said, noting that M&S was trading on multiples of 12.4 times forecast earnings, a 20 per cent premium to Next.

"On the one hand, this looks expensive given our concerns over the longer-term prospects, but on theother, with a strategy update due in November, the near-term rating is likely to be driven more by optimism over the possible outcome."

Next was slightly lower, closing at 2,216p, down 11p, despite support from Santander. The broker adopted a "buy" stance on the stock, saying that while it expected volumes to ease in line with the selling price increases flagged up by management for next year, it was positive on the fashion chain's longer-term prospects. Moreover, with the stock now trading on multiples of 9.3 times forward earnings, Santander concluded that Next looked "good value" at current levels.

Overall, the market ended the month on a negative note, with the FTSE 100 easing by 5,548.62, down 20.65 points, and the FTSE 250 closing at 10,531.8, down 30.73 points as investors banked profits from intra-day gains. Earlier, the benchmark touched a session high of 5,650.33 as traders cheered news of a surprise and sharp fall in the number of Americans filing new claims for unemployment benefits. The US data sparked confidence in the prospects for the world's largest economy and, for a few hours at least, offset the impact of less cheery developments in Europe.

But lingering concerns about Ireland, which warned of a spike in the budget deficit as authorities rush to shore up the banking system, and Spain, which was stripped of its AAA credit rating by Moody's, led to a turnaround in the final hour of business.

The pullback erased hopes of a record quarter. Factoring in last night's performance, the FTSE 100 is up around 13 per cent since the beginning of July. Though there was little chance of surpassing the 21 per cent gain booked between July and September last year, some were hopeful of beating the 14.9 per cent gain set in the final three months of 1999.

The banks tracked the wider market. The US data briefly rescued the sector from the red, but gains faded as the session came to a close. Lloyds, for instance, went from a session best of 76.2p, up 1.9p, in the afternoon to 74.12p, down 0.18p, by the end of the day. Royal Bank of Scotland at 47.21p, down 0.68p, and HSBC at 645p, down 4p, were also among the losers.

Elsewhere, BT lost 1.2p to 140p despite some supportive comment from Credit Suisse. The broker reiterated its "outperform" stance, pointing to the prospect of improving newsflow on the group's pension scheme. "The Government's plans to move to CPI from RPI for calculating pension increases could materially reduce pension deficits, although we question the ease with which private sector schemes will be able to adopt this change," the broker said, reiterating its "outperform" rating and 200p target price on the stock.

Further afield, ITV edged higher last night, rising by 0.4p to 59.65p after Goldman Sachs analysts added the broadcaster's stock to their widely followed "conviction buy" list. The broker said that despite prevailing concerns about the macroeconomic outlook, it was "fairly positive" about ITV's prospects. "Advertising momentum continues to be strong," Goldman explained, labelling ITV the "cheapest of the free TV stocks".

The oil services group Lamprell was in focus, gaining nearly 3 per cent or 10p to 356.4p, as speculators bought in on a round of bid talk. The rumours suggested that Lamprell could go the way of sector peer Wellstream, which recently revealed the receipt of several takeover approaches. The chatter was thin on detail, however. No names were mentioned and no offer price was mooted. Wellstream itself was drifted north, closing at 765p, up 1.2 per cent or 9p, as the market awaited further news on the bid talks.

The defence and aerospace engineering group Senior surged by nearly 8 per cent or 10p to 138.9p after Jefferies issued "buy" advice. The broker said that besides offering exposure to the expected uptick in global aerospace and automotive markets, Senior could grow market share and expand margins. "Overlaying the outlook in Senior's markets is our own view about the quality of the... management," Jefferies added, initiating coverage with a 155p target price. "For those with long memories, this company has come a long way from its disorganised past. In addition, the quality of communication with investors has always been good."