RSA retreats as investors take profit

Insurance company Royal & SunAlliance continued to retreat from its recent 12-month-high after a leading sector analyst told shareholders to take advantage of recent share price strength and sell.

RSA shares have enjoyed a strong start to 2005, rising 9% on hopes that the company could offload its troubled US division and demerge its Canadian business via a stock market flotation.

For the past couple of weeks the shares have hovered around the 85p level as the City has waited for news but yesterday they closed 1p lower at 83.5p after Andrew Crean, the top-rated insurance analyst at US brokerage Citigroup Smith Barney, advised clients to sell.

He believes the rumours that have engendered RSA's recent strong run are wide of the mark. As evidence he offers RSA's recent decision to strengthen the reserves of its US operations by £160m.

Moreover, Mr Crean is of the opinion that RSA shares look expensive under the new international accounting rules, which have forced the company to reduce its net assets by about £400m.

He reckons fair value for RSA shares is 80p.

In the wider market, leading shares closed lower for a third straight session, dragged down by further dollar weakness and a rising oil price. Decent results from a number of companies, from hotel operator Hilton, up 2p to 314p, to defence contractor BAE Systems, 3p higher at 253p, helped to cushion the fall.

At the close of play, the final scores showed the FTSE 100 down 16.4 points at 4972.1, taking its losses over the past three trading sessions to 88 points, or 1.7%.

The FTSE 250 index closed 8.7 points higher at 7184.1, while the FTSE Small Cap index gained 8.4 points to finish at 2928.9. In the bond market, the benchmark 10-year gilt closed lower for an 11th day - its longest losing streak since 1980. Unsettled by concerns of rising interests rates and inflation, the 10-year note ended at 101.610, yielding 4.788%.

Back among the blue chips, traders reported short selling of retailer Next, down 14p to £15.63. Rumours of tough trading at Next have been swirling round the market in recent days and traders note that Goldman Sachs cut its forecasts earlier this week.

Corus, the Anglo-Dutch steel group, bounced back from recent weakness, to close 1.75p higher at 58p - the best performance in the FTSE 100. Traders said CSFB triggered the rally. In a note to clients, the bank said that while rising raw material prices were not good news for the sector, producers including Corus still looked cheap, especially as the steel price looks likely to stabilise in the second half of the year.

Away from the blue chips, there was heavy trading in serviced office group Regus, up 1.75p at 106.75p, and for once it had nothing to do with takeover speculation.

Market professionals believe a European hedge fund is short of 10m shares and has been frantically trying to buy them back over the past week.

Regal Petroleum, the Aim-listed oil and gas explorer with interests in Greece and Romania, was another talking point. Its shares gained 31p, or 8.3%, to 405.5p amid rumours that a rival has offered $200m (£105m) for a stake in one of its developments.

Market professionals, however, attributed the rise to the fact that a big seller, rumoured to be US fund management group Fidelity, had pulled away and a big buyer had stepped up to the plate.

Center Parcs dipped 3.25p to 70.5p after the resort operator revealed that trading since October had been below expectations. The news was contained in listing particulars issued by the company yesterday ahead of its move from Aim to the main market on March 1.

Matrix Communications, the network solutions company that recently raised £7.5m, gained 2p to 217p amid talk that it is set to announce a major deal with Vodafone, up 0.5p to 137.75, that could add up to 50p to its share price.

Biotech company SR Pharma marked time at 31.5p despite whispers that the company is close to announcing a reverse takeover of a company that manufactures a wipe for the MRSA superbug.

This month shareholders approved plans for SR Pharma to issue up to 96% of its current share capital to fund acquisitions.

Avanti Capital, the quoted private equity group, gained 5p to 190p following interim results and news that Laxey Partners had been able to find buyers for its 20% stake at 190p.

Computer games developer Empire Interactive was marked 1.12p higher at 7.25p after signing a US distribution agreement with 2K Games for its Ford Racing 3 game.

Still in the games sector, SCi Entertainment firmed 3p to 316.5p as traders realised the company is likely to be added to the FTSE All-Share index at next month's quarterly review. If that happens then index trackers will be forced to buy SCi shares.

· Underperforming biotech firm ML Laboratories, up 0.25p at 19p, should reveal today the outcome of its shareholder revolt. Investors wanted executive chairman Stuart Sim out and biotechnology entrepreneur Ian Kent in. The board produced a compromise whereby Mr Sim would go and business development director Paul Ballington would be promoted to the top job, but it is understood that shareholders have told the firm's brokers that it isn't good enough. There was a board meeting last night to decide what to do.