Rate cut hopes fail to lift housing

Despite the widely held expectation that the Bank of England's monetary policy committee will cut interest rates tomorrow, firms in the housing sector fared badly yesterday.

Estate agency Countrywide, which has struggled this year as the housing market has slowed, fell 15.5p to 319.5p, while housebuilder Taylor Woodrow fell 8p to 331.5p.

The reason was a gloomy results statement from housebuilding tiddler Ben Bailey, which provoked a 42.5p fall in its own shares to 397p. It reported turnover up some 22% - but despite this, profits sank 18% to £6m.

The company blamed this on prospective buyers being uncertain about making a purchase. To make its building plans efficient, it had to give more incentives to buyers. Increases in the price of materials, labour and the costs of financing land purchases have also hit profit margins, the company said.

However, it added that consumer confidence might come back if interest rates are cut. This did not help investors. Other fallers were Crest Nicholson, down 1.25p to 413.75p, Persimmon, down 10p to 785p and Barratt Development, down 4.5p to 718p.

Stockbroker Bridgewell has been optimistic about the housebuilding sector's prospects but cooled in the changed climate yesterday.

In a note to clients, it warned that shares in the housing sector have risen by a fifth since October, due to the sector being undervalued - and more recently the hope of cuts in interest rates. The latter seems almost certain now, but the stockbroker said that has been taken into account in the share prices and clients should select stocks carefully.

It advised clients to take profits in Taylor Woodrow, and downgraded Barratt, Bovis Homes - down 6p to 645p yesterday - and Redrow, down 4.25p to 406p.

The prospect of an interest rate cut was one factor that helped the stock market rise strongly overall yesterday, with the FTSE 100 rising 36.7 points to close at 5328, a 43-month high, and close to levels last seen before September 11.

This was driven by a rise in oil companies BP and Shell's A shares up 9p to 634p and 21p to £17.98. Because of their size, the groups made up at least five points of the rise in the overall FTSE 100 index. The reason for the increase was Monday's record oil prices, prompted by the death of Saudi Arabia's King Fahd. Yesterday oil prices dipped slightly, although they stayed above $61 a barrel. High oil prices, of course, mean easy money for the oil companies.

The FTSE 250 index was more subdued than its more valuable peer, showing an 18.8 point rise to 7637 yesterday, a session not helped by the falls in mid-cap housebuilders and a 5% drop in the share price of Imperial Leather brand owner PZ Cussons after poorly received financial results.

Shell spent some time at the top of the leaderboard yesterday but at the end it was overtaken by a late surge in O2, the telecommunications company.

Regular market watchers will not be surprised to hear that takeover rumours were doing the rounds, but with a general lack of gossip yesterday the whispers were easier to get going. Deutsche Telekom and Telefonica were in the frame as potential O2 buyers.

Speculators seemed to ignore the slump late last month when significant shareholder Capital sold a £530m stake in the company, which silenced the rumour-mongers - at least for a few days.

Satellite television operator BSkyB rose 10p to close at 551p as traders anticipated better than expected figures today. A note from analysts at UBS forecast earnings up 52% compared with the year before. Their highest forecast for subscribers, at 115,000 in the final quarter, is well ahead of the consensus of about 75,000.

The Rupert Murdoch-controlled group is also expected to confirm that it is on track to hit its targets for subscriber growth. The stock has underperformed by more than 10% since its new strategy was announced, a year ago, and some analysts hope today will prove the catalyst for a re-rating.

Aerospace to medical conglomerate Smiths Group fell some 19.5p to 938p on the back of worse than expected results - despite a promise to post strong sales and profit growth this year.

CSFB upgraded the entire mining sector yesterday, one of the factors helping BHP Billiton to climb 20p to close at 810p, the second highest riser in the leading 100 share index.

The investment bank's strategists think the economic situation is good, which should help the sector. "The upturn looks for real, and its duration, we believe, will be longer than we had initially expected," the broker said.

Other miners faring better were Rio Tinto, up 39p to £19.15, and Xstrata, up 20p to £12.13. Antofagasta rose 22p to £13.46, helped by record copper prices seen this week.

CSFB downgraded the sturdy utility sector but favoured companies that tend to do better in positive economic situations, such as global advertising group WPP - up 6.5p to 608p.

Medical device company Gyrus Group rose 4.25p to 311.25p - a four-year high - after its house broker bumped up its target price for the shares. In its first research note since Gyrus bought American firm ACCMI for $497m (£281m), Numis said the benefits of the deal mean a higher valuation should be put on Gyrus.

"Given the growth prospects, we believe a premium to international healthcare stocks including Smith & Nephew is justified," Numis told clients.

BA and BP: bombproof?

The stock market is becoming somewhat blase about terrorist attacks, it seems. Investors in British Airways and BP yesterday shrugged off a bomb explosion that took place near their Iranian offices in the morning.

BP's shares rose due to the strong oil price and British Airways shrugged off the threat of higher fuel prices and the attack. The airline's shares rose 4.5p to 287p on the back of fairly positive results from low-cost rival Ryanair.

Generally the market was unconcerned about a bomb alert in London that was all over television screens during the afternoon - although it later proved to be a small fire that was not suspicious.

The FTSE 100 is trading very close to levels last seen before 9/11 at 5328 points - a 43-month high.