Market Report: WPP hit by dollar worries and stock overhang

Worries about the falling dollar combined with expectations that a sizeable stock overhang is likely to emerge at WPP in the coming months to send shares in the advertising giant 14p lower to 576p yesterday.

Worries about the falling dollar combined with expectations that a sizeable stock overhang is likely to emerge at WPP in the coming months to send shares in the advertising giant 14p lower to 576p yesterday.

WPP generates a large proportion of its earnings across the Atlantic so the recent drop in the value of the greenback will hit the group hard. To make matters worse, currency analysts not only predict that there will be no rally by the dollar any time soon but fear its drop is very likely to accelerate.

Meanwhile, the City heavyweight Cazenove drew attention to the fact that large sell orders are likely to start to emerge for WPP soon as those American investors who received shares in the UK advertising giant as part of its acquisition of Grey Global start to exit.

The broker believes that up to 82 million shares in WPP could find themselves on the market but says the main reason for the selling is likely to be the fact that many US institutional investors are not allowed to hold listed securities outside America. It therefore downgraded its rating on WPP to "inline" from "outperform".

Elsewhere, Reed Elsevier gave up 8.5p to 489.5p as traders fretted that the publishing giant will be adversely affected by competition from Google, which has launched an academic publishing search engine called Scholar. Credit Suisse First Boston, however, urged its clients not to be too concerned about the threat from the online giant. Retaining its "outperform" recommendation on Reed, the Swiss broker argued that the Scholar search engine does not necessarily pose a greater threat to Reed than Google's existing product.

Falling commodity prices hit the mining sector. The price of tin, copper and zinc all fell in value yesterday, sending Anglo American 23p weaker to 1,265p, Antofagasta 8p lower to 1,110p, BHP Billiton off 9p at 586p and Rio Tinto down 17p to 1,520p. The FTSE 100 fell 27 points to 4,733, while the FTSE 250 retreated 58 to 6,540.

In the energy sector, Scottish Power dropped 3p to 389.25p in response to a downgrade at Lehman Brothers. Although things are getting better at Scottish Power's UK business, Lehman argued that these improvements are unlikely to be sufficient to offset the headwinds the company is encountering at its PacifiCorp division in America.

Short sellers were on the prowl yesterday and dealers reported they were busy attacking two stocks in particular. The car dealer Pendragon was the worst affected, falling 8p to 267p, with those shorting the stock taking the view that all is not rosy at the group and that it is struggling amid tough trading conditions. Suggestions that business is not booming for car dealers was no surprise to those who follow the sector closely. They noted that back in September, HR Owen, a Pendragon rival, was forced to issue a profit warning.

It was less clear why shorters were targeting Sterling Energy, down 0.25p to 17.75p. The oil explorer has had a great run over the past year on hopes that its assets in Mauritania will eventually prove to be very profitable.

Capital Radio lost 1.25p to 405.75p, while GWR fell 3.75p to 242p as Dresdner Kleinwort Wasserstein downgraded the duo before their upcoming results this week. The broker cut its stance on both companies from "add" to "hold", citing a poor trading statement from their rival Chrysalis last week. GWR is expected to unveil interims today, while Capital Radio will post annual results on Thursday.

Among small-caps, Porvair was steady at 103.5p despite the purchase of 10,000 shares at 104p by Ben Stocks, its chairman. Christopher Tyler, Porvair's chief executive, picked up a more modest 5,000 at the same price. IP Live improved 1.5p to 56p after raising £750,000 from a placing at 55p with an institutional investor. The AIM-listed company will use the cash to expand its activities in the live entertainment arena.

Care UK rose to a fresh high of 362p, up 12p, after the nursing home operator unveiled not only forecast-busting full-year results but a bullish outlook across all its major markets. Investec Securities tips Care UK to deliver 20 per cent earnings growth in 2005 and so urged its clients to pile into the group's shares. Texas Oil & Gas added 1.25p to 18.5p as a trading statement from the explorer boasted that the company is now generating cash.

IDMos enjoyed a good debut on AIM as the disease detection specialist raised £5m at 135p. The stock closed at 140p, valuing IDMos at more than £20m. Its management team will use the money to commercialise the dental disease detection and monitoring technology IDMos has developed.