Market Report: Bargain hunters target Standard Chartered

The FTSE 100 was firm at the end of the last full trading session of 2008, gaining 73.33 points to 4,392.68 last night. Volumes remained light, with just over one billion shares changing hands across the market. The benchmark was especially quiet, with 433 million shares being traded, while the FTSE 250, up 48.71 points at 6,400.3, saw deals in around 121 million shares.

Overnight gains in Asia and some early strength on Wall Street, where investors welcomed the US Treasury's rescue package for GMAC, General Motors' finance arm, helped the London market hold on to gains from recent sessions.

On the FTSE 100, bargain hunters piled into Standard Chartered, which swung to 834p, up 3.09 per cent or 25p.

The lender, which along with HSBC is seen as the most defensive in the banking sector, outperformed Lloyds TSB, down 1.17per cent or 1.5p at 126.5p, and HBOS, down 2.27 per cent or 1.6p at 69p, both of which were depressed by reports that possible legal action by HBOS's pension trustees could delay their merger plans.

Elsewhere, in the mining sector, Rio Tinto was unsettled, losing 2p to 1,448p, amid concern about the recent developments in Guinea, the location of Rio's $6bn Simandou iron ore project. Without naming companies, Guinea's new rulers have spoken of plans to review the resource-rich nation's mining contracts.

The Eurasian Natural Resources Corporation was the strongest in the sector at 339.25p, up 4.95 per cent or 16p.

Oil and gas stocks continued to strengthen on recent gains in the oil price, which held steady above $40 per barrel despite slipping from Monday's highs. BG, up 3.69 per cent or 34.5p at 969p, led the way, while Royal Dutch Shell gained 2.26 per cent or 40p to 1,811p.

Engineering groups were buoyed by Rolls-Royce, which gained 2.47 per cent or 8p to 332.25p after announcing a new compressor contract with a subsidiary of Gazprom, the world's largest gas company. Sandy Morris, analyst at Royal Bank of Scotland, said that while the deal was small in the context of Rolls-Royce's airline engine orders, it was significant for the company's smaller energy division.

Among retailers, bargain hunters moved in to make the most of recent losses, helping Marks & Spencer rebound to 214p, up 1.9 per cent or 4p.

Debenhams, down 1.96 per cent or 0.5p at 25p, was in focus after reports it was looking to raise capital to try to reduce leverage. Opinions were divided, with one analyst summing up the mood by saying that, although he welcomed the desire to deal with debt, "the question is how they will go about it". Anticipating further details when the company updates the market next week, he said debt had been a constant problem for Debenhams, adding that "at present, the group is not an asset-rich company, which means it would be difficult for the group to seek funds".

Imperial Energy surged ahead, gaining 17.0 per cent or 175p to 1,205p, amid speculation that ONGC Videsh had received enough acceptances for its 1,250p-per-share offer.

Sources close to the company said that valid acceptances representing more than 90 per cent of Imperial's shareholder base had come through, making the offer binding on both parties. "If it is confirmed, the offer is excellent news for Imperial, which gets a premium for its shareholders despite tough markets and the falling oil price," said one market source. "A buyer like ONGC [which is backed by the Indian state] is hard to come by as everyone else has to go to the credit markets, which are not at their most hospitable."

On the downside, International Personal Finance was weak, losing 2.57 per cent or 3.75p to 142p, after Dresdner Kleinwort moved the stock to "add" from "buy", reducing its target price from 290p to 230p.

Among smaller companies, Vitec edged up by 2.5p to 233.5p. Arbuthnot Securities, which downgraded the stock to "neutral" from "buy" owing to recent outperformance, said the company's trading update in mid-January should confirm that "2008 has been a good year", adding: "In [a recent report], we noted that the outlook for 2009 is less certain and we attempted to rebase expectations for the next two years, reducing our estimates to well below the consensus level. Even at this lower level [however], Vitec should be robustly profitable and cash generative, with a dependable 7-8 per cent dividend yield."

The Innovation Group lost 15.25 per cent or 0.9p to 5p on news that the Allstate Insurance Company of Canada had initiated legal proceedings relating to the design, development and implementation of customised software by Innovation's Canadian subsidiary.

Panmure Gordon, which maintains a "hold" rating on the stock, said that despite advice to Innovation that the claim was "speculative in the extreme", the action was disappointing.

"Even if the case is without merit, Innovation is likely to take a provision against it – denting its cash..." the broker said, adding: "Customers will want to known what the fracas is about... competitors will be on the phones."