Dow defies gravity as Footsie falls

IT LOOKS as foreboding as the heavy summer weather. The Footsie fell to its lowest level in four months, closing down 31.9 at 4340.7, as further clouds appeared over the US economy.

Industrial production there showed a surprise fall, as did producer prices. Meanwhile jobless claims jumped. We already knew from Wednesday that retail sales tumbled. A new warning from mobile phone giant Nokia added to earlier comments from chip leader Intel suggesting the tech recovery appears to have stalled.

Paris and Frankfurt also fell 1%. Oddly enough Wall Street itself held up well through the afternoon, the blue chip Dow Jones index rising 20 points at one point and even the tech-heavy Nasdaq staying positive.

'It's bizarre,' admits Spencer Crooks, director at market maker Winterfloods. 'Wall Street is defying gravity.'

The US bond market, which should have reacted first to the gloomier news, was also quiet. The dollar actually firmed another 0.3 cents against sterling to $1.8533, and 0.24 cents against the euro to $1.237. Sherlock Holmes might have remarked on the dogs that didn't bark. However, Wall Street finally succumbed, ending the session 45 points down at 10,163.

Over here, Marks & Spencer tumbled 19p to 345p following news that Philip Green had walked away, but many were surprised it wasn't more.

'It's a really easy short now,' chortled one hedge fund manager, as he gleefully sold stock he didn't own, expecting to buy it back more cheaply down the road.

The ranks of M&S shareholders have been swelled in recent weeks by huge numbers of professional trading houses, the so-called 'arbitrageurs', who merely bought hoping to make a quick turn by selling to Green at £4.

Deutsche Bank admits it is sitting on 88m shares as a trading position. These traders are now nursing heavy losses, and presumably looking for an exit. Some may be forced out by further falls.

Fellow High Street name WH Smith fell 1 3/4p to 317 1/2p as the Takeover Panel set a 9 August deadline for venture capitalist Permira to make a bid.

Wine bar chain Yates meanwhile fell 5 1/2p to 135p on fears bidder GI Partners, which is offering 140p, will walk away. Source say GI is 'rethinking' its position as Commerzbank, a major Yates investor, is cool on the bid.

Gold and other commodities look to be back in fashion. After a recent surge the precious metal firmed another 0.35 cents to $405, while copper also jumped. Miners were in focus.

Rio Tinto leapt 17p to 1392p, BHP Billiton 2 1/2p to 500 1/2p as Morgan Stanley made the blue chips its top picks in the sector. It also raised its target price on Xstrata, up 12 1/2p to 777p, but cut Anglo-American, which nonetheless rose 8p to 1138p.

Rat catcher and plant waterer Rentokil Initial fell to a fresh four-year low, easing 4p to 136p, as broker Citigroup advised clients to sell.

The current level, it said, 'is pricing in either imminent recovery or a bid; we think neither is likely'. The troubled company ousted veteran chief executive turned chairman Sir Clive Thompson following a shock profit warning in May.

Wolseley, the world's biggest builders' supplies group, firmed another 4p to 874p following upbeat forecasts earlier this week, but Merrill Lynch turned seller. The broker thinks it has risen too far, and worries about signs of an imminent slowdown in the US housing market.

Drugs giant AstraZeneca fell 44p to 2329p on worries of cut-price competition, as an Indian rival announced plans to launch a cheap version of Nexium, the ulcer treatment that accounted for nearly a fifth of Astra's sales last year.

Thinner margins hit telecoms kitmaker Marconi. Its shares fell 41p to 655p after it sold fewer expensive call routers in the last three months. Sales eased £3m to £339m on the previous year.