Market report: Wednesday close

IT WILL be all change among the blue-chip companies that make up the Footsie in the next few months.

Not only must institutional investors contend with the quarterly reshuffle, which should see sugar producer Tate & Lyle, down 7 ¾p at 475p, replace Tomkins, 1p down at 250p, today, but Shell's proposed merger with associate Royal Dutch will result in significant changes to the way the index is calculated.

The revamped Shell's weighting will climb from 10% to about 17% of the value of the companies that make up the index. That, in turn, will seriously affect institutional investors, who will be obliged to make changes to their portfolios.

Goldman Sachs estimates passive funds alone will have to top up their holdings by $7bn (£3.6bn) while the figure among active funds is likely to be even bigger. Because of these technical factors, and despite all the controversy about lost oil reserves, Goldman is picking Shell, 4p lower at 430 ½p, over rival BP, down 7p at 507p, during the next eight months.

It says BP offers superior fundamentals to Shell on a medium-term view, but the sheer scale of index-related buying in the latter ahead of next year's reweighting is likely to prove the driving force.

Goldman also calculates the closure of the discount between BP and Shell implies scope for a further 40p.

After big falls on Wall Street last night, the Dow opened higher today but the City remained unnerved, with the FTSE 100 index nursing a loss of 24.8 points to 4703.9. Sentiment was also undermined by a drop in commodities prices.

Deutsche Bank has followed rival Merrill Lynch and downgraded parts of the mining sector.

Rio Tinto, down 32p at 1442p, has been cut from hold to sell and seen its target cut 90p to 1300p. Deutsche pointed out continued strength in iron ore, coal, copper and aluminium prices have benefited Rio's 2005-06 outlook. It also noted the share price has responded to this and sits at a historically high premium to net present value. Other sector losers included BHP Billiton, 12p to 572p, Xstrata, 19 ½p to 871 ½p, and Antofagasta, 16p to 1054p.

Aerospace specialist Cobham plunged 110p to 1334p as brokers faced up to the prospect of lowering their forecasts for the current year after the group indicated profits would come in broadly in line with expectations following delays to a contract with the US Army. Analysts had been hoping for something a little better.

Broker UBS has raised its recommendation on builders' merchant Travis Perkins from neutral to buy and lifted its 12-month target from 1466p to 1755p. UBS believes a part-purchase of Focus Wickes - namely, the non-DIY Wickes side of the business - would be good for sentiment, strategy and earnings. The shares jumped 60p to 1549p.

Fire safety equipment maker Kidde was another strong performer after it emerged United Technologies Corporation has renewed takeover talks. Kidde, up 7p at 161p, has already rejected October's indicative offer of £1.38bn but the two sides may well reach an agreement before the Takeover Panel-imposed deadline of a week tomorrow.

Dairy group Arla Foods, up 2 ¾p at 57p, is expected to be combined with the British operations of Dutch rival Campina after a merger of the two parent companies today. Heavy UK job losses are unlikely as Campina's Yazoo flavoured milk and supermarket ownlabel yogurts are imported from the Continent.