Banks ride high on rate cut hopes

Hopes that interest rates will be cut before too long helped give the market a lift yesterday, and the high street banks did particularly well on the back of it.

Four banks featured in the top 10 risers of the blue-chip FTSE 100, with mortgage bank Northern Rock the biggest beneficiary, up 19p to 808.5p.

Part of the rise was fuelled by a note from Deutsche Bank, which reaffirmed its recommendation to buy the shares. The bank thinks Northern Rock will benefit from a strong British market for remortgages.

The banking sector has been weighed down recently by warnings from Barclays and HSBC that more customers are having trouble paying back their debts than last year.

But yesterday those fears receded and Barclays rose 10.5p to 563.5p, Royal Bank of Scotland 30p to £17.15, Alliance & Leicester 15p to 888p, HBOS 12p to 872.5p and mortgage bank Bradford & Bingley 5.75p to 334.75p.

Together with strong gains from BT, up 8.5p to 226p after positive regulatory news, the banks helped the FTSE 100 rise 15 points to a three-year high of 5114. Mid-cap stocks also rose, with the FTSE 250 index up 38 points to 7382.

Tate & Lyle was the latest sugar refining firm to warn about cuts in sugar prices proposed by the European commission. It said that profit in its financial years 2007 and 2008 could be reduced by £100m in total.

Sugar makes up only 18% of the firm's sales but almost half of its profit. The firm said it will lobby the commission to change the proposals but the shares dipped by as much as 4% in the morning. On Wednesday Associated British Foods made similar gloomy predictions and the share price also fell.

Deutsche Bank said that the impact was better than might have been expected, and as Associated is a conservatively run firm, the losses should not be any worse.

Associated shares more than recovered their Wednesday losses to close up 11.5p yesterday at 814.5p, and Tate also bounced back to end the day 3p better at 480p.

Mining companies dropped back as the price of metals fell again. Copper was the worst hit, and the day saw a corresponding fall in the price of Antofagasta, a specialist in the metal. It closed down 9p to 1220p. Rio Tinto also dipped 10p to 1712p.

However it was BHP Billiton that was the biggest faller in the sector, due to a hefty tax bill in Australia that amounted to £425m with interest and penalties included, and it closed down 7.5p to 703.5p.

DIY retailer Kingfisher was boosted by 1.75p yesterday to 253.25p, after Credit Suisse First Boston told its clients about a meeting with the firm. It said that a "fundamental" rethink of underperforming retailer B&Q is on the cards, and that a new format is being tested next year. It was positive about the firm's operations in Poland, Spain and Italy.

Brewer Scottish & Newcastle was also boosted by an upgrade from CSFB, which said the shares should outperform the market.

The broker said that S&N is integrating its Russian businesses, which should cut costs, and that market research data showed its brands are doing well in Britain. It boosted its target price for the firm by 65p to 520p and the shares followed with a 4p rise to 472.75p.

Silly season started early yesterday and a series of bid rumours did the rounds. Ikea was the name in the frame to bid for MFI Furniture Group, which was up 5.25p to 115.75p, the second biggest rise in the mid-cap index yesterday.

The shares have benefited from hopes that interest rates might soon be cut - but yesterday it was the rumoured in tentions of Ikea that fuelled the rise.

The Swedish firm said recently it wants to expand in the high street because it cannot find enough sites for its big warehouses in Britain, and this led to hopes it will see buying MFI, a company that is used to being considered a bid target, as a short cut.

Other rumours had less obvious roots, although one wry trader commented that the "sun had gone to people's heads" and that traders were more worried about Tim Henman's match at Wimbledon than what was happening on the market.

Some stories got around though, with rumours that oil giant BP is interested in Cairn Energy fuelling a rise in the shares of the smaller oil firm of 54p to £14.05. At present the market is speculating on how the big oil firms will spend all their excess cash.

Crazier rumours swirled around Rentokil, that British Gas owner Centrica was taking a look. Recently investors have been hoping for a break-up of the royal ratcatcher, but bid talk only boosted the shares by 2.25p to 161.5p yesterday.

Meanwhile very early stage data on the asthma drug of Cambridge Antibody Technology helped it climb 27.5p to 675p, although the data only showed the drug CAT-354 was safe, and gave no indication whether it worked.

Paladin Resources was down 6.25p to 218p. Traders said the reason was Merrill Lynch placing 19m shares at 214.5p.

A hot dotcom property?

The days of dotcom floats are back and Rightmove, the online estate agent, provides more proof.

Part-owner and bricks and mortar estate agent Countrywide Properties said yesterday that an IPO of Rightmove is under consideration and that Scott Forbes, a former director of Cendant, has been appointed chairman to explore the idea.

Rightmove was set up in 2000 at the peak of the dotcom boom but survived the rout and now claims to be the biggest property website in the UK.

It is owned by Countrywide, HBOS and Skipton Building Society which each have 30% with insurer Royal & SunAlliance owning the rest.

The announcement was made after the market closed yesterday but Countrywide's shares rose 11p to 295p beforehand.