Market report: Thursday close

THE Bank of England's monetary policy committee has been raising interest rates to damp down house prices and deter consumers from running up more debt, but it seems business for the banks that lend us the money is booming.

Just as the full-year reporting season gets under way, Credit Suisse First Boston and Goldman Sachs are telling clients to expect another strong performance by the High Street clearers in 2005. Both brokers forecast loan growth of 9% as consumers continue to make the most of relatively cheap money.

CSFB says the banks will still be forced to wrestle with margin pressure, but not as much as last year. Revenues are expected to grow by about 8%, easily exceeding the anticipated 5% rise in costs.

Goldman sees earnings growth of 12% in 2005 and reckons the bank sector is 20% undervalued. CSFB believes the sector remains good value, backed up by the possibility of consolidation, while Goldman takes the view that the housing market slowdown is not the end of the world.

Alliance & Leicester, down 6p at 902p, has been downgraded from neutral to underperform while Lloyds TSB, off 1¾p at 467¾p, is seen as the 'best play in a consolidation scenario'. Northern Rock, 1p cheaper at 780½p, begins the reporting season next Wednesday.

Shares generally dipped back below the 4800 support level following big falls for the Dow in New York overnight on the back of disappointing corporate profit numbers. Wall Street extended those losses in early trading this afternoon. The FTSE 100 index fell 17.5 points at 4,800.8.

Fast-growing building support services group Mears slipped 1¾p to 241p. Chairman and founder Bob Holt has flogged 2m shares in the AIM-listed company at 240p (£4.8m). Scottish institution Aegon snapped up the bulk of them and the rest went to satisfy other institutional demand. It reduces his holding to 3.2m shares (5.53%).

There was big turnover in Aggregate Industries, ¼p lighter at 139½p, after the board agreed to back the 140p-a-share offer from Swiss group Holcim, valuing the business at £1.8bn. More than 200m shares changed hands with a single line of 28.82m going through on the ticker at the bid price.

Up-for-sale property developer Minerva fell 6½p to 274½p on news that Lehman Brothers had sold its debt in Allders, the ailing retailer in which Minerva has invested £17.4m. It has sparked fears Minerva's stake could be worth considerably less if the retailer's new debt owners call in the receivers, close the business and break up the chain. No buyers have emerged for Minerva, put up for auction in July. UBS has cut its target on Minerva from 340p to 300p.

Tobacco shares came under pressure after US investment bank JP Morgan poured cold water on suggestions that Japan Tobacco was likely to bid for one of its European peers. Gallaher, down 10frac12;p at 770p, has been constantly mooted as a potential target.

British American Tobacco fell 9p to 924½p and Imperial Tobacco slid 17p to 1378p.

Ark Therapeutics rallied 3p to 89p following the sale of Merlin's 5m shares. Broker Nomura says it clears an overhang in the shares.

WH Smith fell ¼p to 359p as brokers gave further thought to yesterday's Christmas trading update. UBS remains neutral but has raised its target by 20p to 350p. Rival CSFB has raised its sights from 350p to 400p.