Market report: Monday close

TOBACCO producers saw the value of their shares go up in smoke today after being downgraded from buy to hold by Deutsche Bank, one of the City's biggest players.

Imperial Tobacco fell 15p to 1367p and British American Tobacco was off 4p at 886p despite reassurances from Deutsche that it remains positive about the sector's prospects.

But the bank makes the point that shares do not go up in straight lines and that there was a need to downgrade BAT and Imps only on valuation reasons. Still, Deutsche admits it may have jumped too early and adds that any significant share-price weakness would see the buy case reinstated.

It remains convinced as to the long-term value of the sector and reckons cashflow will be utilised to generate value through consolidation. Once that process is over, it believes, the industry has no aspirations to diversify and cash will eventually be returned to investors, particularly through share buybacks. Deutsche has kept its targets of 930p for BAT and 1450p for Imps.

Share prices generally made a lacklustre start, overshadowed once again by the weakness of the dollar, which is fast approaching two to the pound.

Christmas celebrations may be in full swing but the season for giving has not spilled over into the share market, where trading conditions are thin. The FTSE 100 index was down 25.10 at 4722.8.

Publisher Reed Elsevier slipped 5&frac12p to 463p after further reflection on last week's encouraging trading update. US securities house Goldman Sachs has repeated its in-line rating, but says it was disappointed the group did not 'nudge up its guidance for underlying 2004 earnings growth'.

However, brokers such as Credit Suisse First Boston are worried about the outlook for companies trading in the US and the impact of a weak dollar on their profits.

Failed takeover talks, a weak dollar and worse-than-expected trading in Japan, Australia and Turkey forced medical devices group Corin to say full-year profits will be 'slightly below market expectations'.

But it added that the US approval process for its metal-on-metal hip resurfacing are six months ahead of schedule. Corin shares gave up 11 1/2p to 335p.

One company taking advantage of the weaker dollar to pick up assets on the cheap is Smiths Group, up 18 1/2p at 785p.

The aeronautical-to-medical products group has agreed to splash out $925m (£478m) on US healthcare business Medex. The deal is expected to boost sales of its medical division by a third and profits by almost half.

It was the first day of trading on Aim for India Outsourcing Services after a placing of 10m shares at 5p by broker Durlacher. The shares opened at 9 1/2p before settling at 14p. The company has been formed to capitalise on acquisitions and investment opportunities in Indian outsourcing.

Bob Morton's Harrier returned from suspension and closed steady at 17p despite a breakdown in merger talks with German outfit Articon-Integralis. But Morton remains upbeat and says he has already received a number of similar approaches.

Alfred McAlpine fell 3p to 278 1/2p. US broker Smith Barney has cut from buy to hold, arguing the group's trading statement has been overshadowed by an exceptional charge of £27m.