Market Report: Inflation and Russia cast gloom over market

There were few winners on the top tier as the inflation figures for June shocked the market. Traders also had one eye on the worsening Russian diplomatic situation, while several cited general signs of waning confidence.

Only 11 blue chips closed in the black, with Tate & Lyle topping the leaderboard. The sugar group rose 4.9 per cent to 600p after Goldman Sachs upgraded it to a "conviction buy". The US broker backed Tate & Lyle to perform strongly for the rest of the year after a weak first half. The group was also buoyed by market speculation that it will announce a £300m share buy-back at its annual general meeting today. It could also provide an update on its discussions to sell the bulk of its European ingredients assets for £200m.

There was little else to shout about on the FTSE 100, which slumped in early trading after a bout of profit-taking in the US the previous night. Sentiment was not helped by weak trading on the Nikkei, after an earthquake in Japan sent local insurers' share prices spiralling.

The FTSE's decline was compounded by the announcement of higher-than-expected inflation levels in June. The top tier fell as much as 69.6 points after the consumer price index hit 2.4 per cent rather than the expected 2.3 per cent. The retail price index rose to 4.4 per cent, despite predictions it would fall. London rallied on the back of positive trading in the US but still closed down 38.6 points at 6,659.1.

Mining stocks were particularly hit on the back of profit-taking, but most sectors suffered. Some stocks were hit despite positive news flow. Reed Elsevier announced it had agreed to divest the remainder of its troublesome Harcourt Education division. After selling assets to Pearson earlier this year, it agreed yesterday to sell its US Schools Education division to Houghton Mifflin Riverdeep Group for $4bn. Panmure said the news should provide scope for a re-rating of the stock, but it was not enough to prevent it falling19p to 656p.

Hammerson also fell despite selling a 50 per cent interest in WestQuay shopping centre to the Singapore government's investment vehicle for £299m. One market maker said the divestment was a positive step, and, despite the shares falling 18p to 1,344p, it had helped the group outperfom its peers on the day.

While the brokers had backed Hammerson, they heaped misery on to Wolseley after Monday's trading statement revealed the weak dollar and problems in the US housing market would hit profits. Deutsche Bank said it could not see a catalyst to help bolster the building materials group, while Citigroup said the update warranted a modest downgrade in expectations.

The medical technology company Gyrus Group was one of the top second-tier risers after a bullish trading update. Gyrus predicted a revenue rise of 11 per cent in its first half results. It closed up 12.5 per cent at 469.75p. N Brown did not fare so well with its update, and closed down 2.75p at 320p. The group reported a 15.8 per cent boost in turnover but added that debts had hit margins. Broker Citigroup said shareholders should consider locking in profits.

Investors were shaken by the news that Informa's chief financial officer would step down at the end of the year. Panmure said Anthony Foye's departure after 20 years would hit the information business, which was a takeover target last year. "Bulls will say this augurs well for a renewed bid. Bears will highlight that Datamonitor has just been completed and the acquisition-driven model could unravel now," it said. The shares closed down 17.5p at 584.5p.

Today marks pharmaceutical company Vectura Group's first day on the main market after moving from AIM. Investors are watching with interest to see whether the move will help turn around the stock's performance. It has fallen 22 per cent in four months.

Traders were surprised that the fallout from the UK's diplomatic spat with Russia has not had a huge impact on the market. Many were expecting London-listed miners with assets in Russia to take a severe hit. This was backed by a report from Ambrian Resources, which said the situation was "hardly good news" for those with exposure to Russia.

Premier Asset Management was one of the high risers on AIM after it agreed to a management buyout that values the company at £43.8m. The move, backed by Electra Investors, sent the share price up 26.7 per cent to 280p. Carter & Carter also continued to claw back losses from Friday.