Market report: Weds close

MINING shares were on the slide on both sides of the Atlantic today after the price of gold suffered its biggest fall in 10 weeks on the back of a resurgent dollar.

Bullion was trading at $405 an ounce in London today, having changed hands yesterday at $420. There was a big overnight sell-off of the gold future and shares of the big mining companies took a beating on Wall Street with Newmont Mining down 5% and Barrick Resources off 7%.

It was a similar story in the Square Mile with gold miners and producers of other precious metals being sold off. Anglo American was down 30p at 1308p, Rio Tinto off 45p at 1337p,Xstrata 27 1/2p lower at 698 1/2p and BHP Billiton 17p cheaper at 495 1/2p. The fall in BHP came despite Deutsche Bank repeating its buy recommendation on the shares.

Dealers in London said the sell-off was largely currency-related but pointed out that mining shares have enjoyed a strong run so far this year on the back of the rising bullion price. The dollar was boosted by yesterday‘s strong retail sales and last week‘s better-than-expected employment numbers.

Shares generally were marked lower following the big sell-off overnight on Wall Street where the Dow tumbled 134 points despite those retail sales figure and impressive profit numbers from Johnson & Johnson. Some investors, however, fear the resurgence in the US economy could lead to a rise in interest rates. The FTSE 100 index closed 30.40 points lower at 4485.40, having been almost 50 points down earlier ion the day.

Marks & Spencer was the biggest faller among blue-chips following news of a drop in like-for like sales and loss of market share, the price retreating 12 1/2p to 264p. Some City folk dared to suggest the company was again looking vulnerable to a bidder but that did not wash with most traders, who believe the recovery has stalled and urgent action needs to be taken.

Upmarket fashion retailer Burberry rose 5 3/4p to 378 1/4p following a bullish second-half trading update. Broker Merrill Lynch chose to repeat its buy recommendation on the shares, but US investment bank JP Morgan remains neutral despite admitting that licensing and wholesale numbers were ahead of expectations. Sports retailer JJB Sports was another High Street casualty, losing 28 1/2p at 283 1/2p on news of a drop in profits.

Merrill Lynch has taken a look at the European oil sector and wants to remain overweight in BP, 2 1/4p cheaper at 488p. It is also a buyer of high-flyer Cairn Energy, up 2p at 890p, and has raised its target price from 870p to 1060p.

Merrill has lifted 2004 and 2005 earnings for Cairn by 5% and 35% respectively as a result of a 'more constructive' view on the oil price outlook.

'With the current share price merely reflecting existing assets and the recent discoveries under a $26 [per barrel] oil world, in our view we believe there is still material upside to valuation as the company executes its intensive exploration campaign in the Rajasthan region,' its analysts said.

Shell rose 3 3/4p to 381 3/4p. US broker Lehman Brothers has repeated its underweight rating of the shares and 380p target.

The internal review of the downgrade of proven oil reserves will be completed by the end of the month but Lehman warns there is no 'quick fix' to the reserves shortfall.

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