Market Report: Morgan Stanley index is boost for London shares

The Morgan Stanley Capital International's World Index is the closest thing to a global equity index, and inclusion or exclusion can give stocks a far bigger boost or knock-back than a place in any of the London indices. More than $3 trillion (£1.6 trillion) of global funds are benchmarked to the MSCI, so inclusion often means large amounts of buying by funds.

The index's yearly update was good news for London traded equities, with nine new inclusions and only two demotions. The inclusion of the mining group Xstrata will come as no surprise, nor will the promotion of the online gambling stock PartyGaming. Xstrata added 82p to 2,480p on the news, although PartyGaming was unable to cash in and fell 3p to close at 148p. The rival online gambler, Sportingbet, fared better on the news adding 21p to close at 447.5p.

Other stocks included were the second-liners Carphone Warehouse, down 0.5p to 360.25p, the broker Collins Stewart Tullet, 12p firmer at 806p, the chip maker CSR, 16p better at 1,495p, the banking group Investec, up 57p to 3,296p, and the recruitment consultant Michael Page, up 10.5p to 412.5p.

Perhaps not surprisingly after its recent troubles, the software provider iSoft was one of two stocks demoted from the index, although the shares continued Wednesday's rally to climb 1.25p to 96.75p. The other relegated company, Telent Semiconductor, lost 11p to close at 495.5p.

On the whole, London shares were weak as Wednesday's 25 basis point rise in US interest rates sent the Dow tumbling in early trade, with London following in its wake. Wall Street was down 107 by the time London trading ended, and the FTSE 100 closed 41.4 lower at 6042. Angus Campbell, of the spread-betting firm Finspreads, said the next move for the London market could be severe. "As the market continues to consolidate, we can expect increased volatility when it breaks out of this trading range, just as Wall Street has done," he said.

Selling private equity-backed assets does not seem to be a problem at the moment, as illustrated by 3i as it confirmed record profits and a larger-than-expected £700m return of capital to shareholders. It is buying that's the problem, and traders' concern about the company continuing to deliver strong results in ever-more competitive conditions for private-equity investors was behind the stock falling 14p to 919p.

Marks & Spencer was weaker on heavy volume as 40.5 million shares - more than 2 per cent of equity - were placed at 613p. Traders said the most likely source was the Icelandic investor Baugur. Shares in M&S, which arenear to an eight-year high after a remarkabl turnaround in trading over the past couple of years, lost 21p at 611p.

Elsewhere in retail, French Connection continued to slide after Wednesday's profits warning - its third in the past 12 months. The shares lost another 6p to 205p on the back of Wednesday's news, but for many traders the warning came as no surprise as the sales woes have been well flagged.

In the small-caps, the biotech Immupharma continued to benefit from Wednesday's good news on Phase 1 trials of its treatment for lupus, a chronic and often fatal immune system condition. Traders said Phase 2 trials are likely to proceed rapidly and the drug will be fast-tracked into Phase 3 trials "possibly within the next couple of months". The shares added 11.5p to close at 74p.

Elsewhere in small-cap biotech stocks, two directors buying stock boosted Phytopharm. The chief executive Richard Dixey and the chief operating officer Daryl Rees bought 35,000 and 26,000 shares respectively at 56p, as the shares closed 1p better at 53.25p.

Carter & Carter, the highly rated outsourcing consultancy, raised £22.9m in a placing organised by Hoare Govett, and the shares were in demand as the placing was six times subscribed. The proceeds will fund the acquisition of Retail Motor Industry Training. Institutions lucky enough to get involved in the placing, at 625p, were in the black as the stock rose 23p to 644p.

Traders are looking out for SilverJet, a new all-business class long-haul airline coming to the market today. The issue was four times subscribed due to the good track record of the chief executive Lawrence Hunt, with trading expected to start at 112p.

Finally, the blonde bombshell Michelle Dewberry might have pipped Ruth Badger to win The Apprentice, but traders don't fancy the shares of her new employer much. Despite the publicity generated by the show, Sir Alan Sugar's Amstrad lost 6p to 190.5p, valuing it at £158m - the equivalent to a mere 20 per cent of the £800m net worth of its founder, as the show's producers kept reminding us.