Market report: Tuesday close

ROYAL Bank of Scotland suffered a setback today, falling 1p to 1567p, after several City players took the view that investors have probably seen the best from the shares for the time being.

US securities house Morgan Stanley has slashed its 12-month target price for the bank, which includes NatWest, by 13% to 650p. It has also downgraded its recommendation from overweight to equal weight. Rival broker Prudential-Bache has downgraded from buy to hold. Both have taken into account the strong performance of the shares, up from a low of 1195p during the past year, as the benefits of integration from the NatWest deal percolate through. But it looks as if most of the merger benefits have now been achieved.

Meanwhile, Abbey National added 2p to 531p after broker Merrill Lynch urged clients to switch out of Lloyds TSB, 3 1/2p off at 415 1/2p. Merrill is impressed by the £30bn shrinkage in Abbey's wholesale portfolio and has upgraded the shares from neutral to buy with a 635p target. But it has downgraded Lloyds TSB from buy to neutral.

Elsewhere in the financial sector, Royal & SunAlliance rallied from opening falls to trade 5 1/2p better at 149 1/2p ahead of interim results on Thursday.

The insurer said yesterday that it had embarked on a strategic review of the business, virtually confirming intense market speculation that a rights issue to raise up to £900m was on the cards. Early indications seem to suggest a two-for-three at 100p. Deutsche Bank says sell RSA and has set a target of 132p.

Broker Credit Suisse First Boston has begun coverage of rival insurer Prudential, 9p better at 467p, with an outperform rating and 500p target. Business is expected to return to the with-profits bond markets, it says. Share prices ran out of steam undermined by opening falls on Wall Street this afternoon. The FTSE index ended unchanged at 4204.4.

But pubs chain Mitchells & Butlers retreated 5p to 239p as Deutsche Bank downgraded from buy to hold. Allied Domecq fell 5p to 388p following yesterday's trading update. Dresdner Kleinwort Wasserstein has cut from buy to add, while Deutsche says buy and has a target of 425p.

Invensys added 1 1/4p to 36 1/2p on turnover of 85m shares after Deutsche added the stock to its UK Focus List. Two lines totalling 25.48m shares went through after the close of business last night at 35 1/4p.

Bob Holt's Mears Group jumped 4p to a record 125 1/2p. Interim pre-tax profits grew from £1.57m to £2.15m. Brokers have pencilled in £5m for the full year at the building services support group. The interim payout goes up 40% to 0.25p.

Antofagasta jumped 60p to 860 1/2p following better-than-expected interim results and news of the proposed demerger of Quiqenco, equivalent to a 9% return to shareholders. Broker Cazenove says buy.

Shami Ahmed of Joe Bloggs fame has bought a further 500,000 shares in menswear retailer Moss Bros, unmoved at 63 1/4p. It takes his total stake up to 20m, or 22%.

Computer software group Dicom rose 35p to 612 1/2p. The group more than doubled pretax profits last year to £8.8m. It is optimistic about prospects for the current year and Seymour Pierce rates the shares a strong buy.

Defence contractor Meggitt rose 5 1/2p to 224 1/2p after reporting a rise in first-half profits from £34.1m to £35.7m. The company is confident of meeting targets for the full year.