Market report: Monday close

THE decline in house prices will continue for the next two years at least, and that will be bad news for high-riding housebuilders and for investors.

That is the conclusion of US investment bank JP Morgan, which has begun coverage of the sector with an underweight rating on George Wimpey, down¾p at 389¼p, Barratt Developments, off 2p at 548p, and Persimmon, 2½p cheaper at 649½p, and a neutral recommendation on Taylor Woodrow, down 2¼p at 247¾p.

JPM says housebuilders have enjoyed a phenomenal run but is cautious about the market in this country and the US. By contrast, it reckons there is scope for a 12% improvement among the 16 European construction and building materials companies it covers.

The bank has set a 12-month target of 493p for Barratt, 507p for Persimmon, 278p for Taylor Woodrow and 373p for Wimpey. But these values are likely to continue falling throughout 2006 and the bank has lowered targets for that year too, with Barratt on 452p, Persimmon 477p, Taylor Woodrow 266p and Wimpey 345p.

Gains in thin trading were the order of the day. The FTSE 100 index climbed back above 4700, rising 42.8 to 4736.8 as Wall Street opened sharply higher this afternoon.

Just weeks after denying to the Evening Standard that it had received any bid approaches, or had talks with anyone else, the London Stock Exchange has admitted rejecting an offer worth 530p a share from rival Deutsche B?rse.

Bid speculation has created something of a false market in the shares of late, the price having shot up from 377p since August. Officials from the LSE visited Frankfurt recently, spurring claims the two sides were in merger talks again. The shares today jumped 110p to a record 540p as US broker Bear Stearns raised its rating from peer perform to outperform. It says the prospect of a counterbid remains high.

The latest trading update from Lloyds TSB was well received and the shares, up 15p to 443p, led blue-chips higher. But HSBC fell 2½p to 870p after Merrill Lynch downgraded from buy to neutral followinga trading update from the bank, which it says has prompted a small earnings forecast downgrade. US broker Lehman Brothers remains equalweight and has repeated its 930p target.

Industrial holding company Novar surged 23½p to 189p after agreeing terms of a £796m bid from Honeywell International, worth 185p a share. That tops an earlier 145p-a-share offer from rival Melrose, down 18p at 111½p.

Catlin dipped 1½p to 347½p after broker UBS cut it from buy to neutral and lowered its 12-month target by 40p to 420p. Aim-listed Hemisphere Properties rose 0.13p to 2.25p before being suspended pending clarification of its financial position.

Takeover target Geest firmed 10½p to 630½p. Broker Credit Suisse First Boston has increased its forecast price from 520p to 620p with a neutral rating. It reckons fundamental value is just 480p and calculates Icelandic shareholder Bakkavor is unlikely to pay more than 650p a share.

Manic depressives can reach for another batch of helpful pills after US health authorities approved the Equetro treatment from Shire Pharmaceuticals, up 4¼p to 527¼p. The treatment helps deal with the manic attacks of sufferers of what doctors call bipolar disorder without patients putting on much weight.