Market Report: Mining sector suffers as market veers southwards

Worries about the pace of growth in China and jitters about the eurozone weighed on the mining sector last night, with the likes of Rio Tinto and Xstrata suffering as the FTSE 100 closed at its lowest level since September last year.

HSBC warned the markets to brace themselves for "lower readings" on Chinese data in coming weeks. Leading indicators have been slowing over the past few months, with the country's overheated economy cooling off as policy tightening feeds through to growth.

Though still far from a meltdown (HSBC still expects China's economy to expand by about 9 per cent between now and 2011), the prospect of a pullback in the pace of growth spooked the commodity markets, with traders factoring in the possibility of a fall in the country's demand for metals.

Besides the HSBC circular, market watchers also highlighted a sharp downward revision in the Conference Board's leading gauge for Chinese economic activity.

The concerns about China were supplemented by growing caution ahead of tomorrow's expiry of a major European Central Bank financing facility. There were worries that the ending of the ECB's 12-month, €442bn (£358bn) funding programme could unsettle the banking system as lenders scramble to roll over their financing needs. The fears undermined sentiment across the markets, hastening the falls across the mining sector.

Rio was the weakest of the blue-chip stocks, ending 6.4 per cent, or 208p, lower at 3,048p, while Xstrata fell 6.1 per cent, or 58.7p, to 908.7p and Lonmin lost 5.9 per cent, or 91p, to close at 1,455p. Vedanta Resources fell 129p to 2,168p despite reports indicating that it might be on track to secure environmental clearance to proceed with its controversial bauxite mine in the eastern Indian state of Orissa.

Kazakhmys ended 55p behind at 1,032p despite UBS switching its view from "neutral" to "buy".

Overall, losses in the mining sector, concerns about the expiry of the ECB financing facility and a sharp slide in the value of the euro conspired to push the FTSE 100 below 5,000 points. The benchmark index lost 3.1 per cent, or 157.46, points to 4,914.22 and the FTSE 250 slid by 258.52 points to 9,386.36.

The declines came against the backdrop of sharp falls on continental indices, with the Euro Stoxx 50 index of leading European blue chips slumping below a key support level.

Predictably, banks came under pressure, with European inter-bank lending rates spiking to record highs. Barclays was the weakest of the UK lenders, sliding by 18p to 267.35p, while HSBC declined by 23.5p to 615.5p and Royal Bank of Scotland closed 1.68p lower at 41.77p.

The market sell-off gathered pace as news emerged in the afternoon of worse than expected data about US consumer confidence, with the Dow Jones industrial average falling back below 10,000 points on Wall Street.

The weakness was all-encompassing and not a single FTSE 100 stock was able to book gains. AstraZeneca, though lower on the day, was among the more resilient, shedding just 14.5p to 2,947p as traders sought cover in defensive sectors such as pharmaceuticals. Astra was also supported by a dash of bid speculation, with analysts at Standard & Poor's including it in a list of possible European targets for US companies. "If US acquisitions across the Atlantic remain similar to those deals announced in the past 12 months, Europe offers numerous attractive targets for interested companies," S&P said.

Reckitt Benckiser also outperformed the wider market, easing by 42p to 3,080p after ING turned positive, urging investors make the most of the recent contraction in the stock's price-to-earnings multiple.

"Reckitt Benckiser is more than discounting the potential negative newsflow and disregarding the upside from normalisation in Europe, upside in emerging markets and mergers and acquisitions opportunities," the broker said, switching its stance on the stock from "hold" to "buy".

Further afield, the social housing repairs specialist Connaught, which issued a profits warning on Friday, was hammered, sliding by 20.6 per cent, or 27.8p, to 107.2p as yet another broker scaled back its numbers. Analysts at Panmure Gordon said they did "not fell much more reassured" after the company's conference call on Monday. "We feel there is still much uncertainty surrounding the stock," they added in a note to clients, reiterating their "sell" view and revising their target price from 175p to 110p.

On the upside, the silicon wafer manufacturer PV Crystalox Solar, which was held back on Monday when Goldman Sachs downgraded the shares from "neutral" to "sell", was driven up again by JPMorgan Cazenove's upgrade. The stock climbed 0.25p to 55p after the broker revised its view from "neutral" to "overweight". JP also introduced an 80p target for the shares, naming PV as its top pick in the European solar sector.

JJB Sports rose nearly 6 per cent or 0.56p to 10p amid rumours of stakebuilding. But the chatter was vague, with no clues about the buyer's identity.