Tuesday lunchtime market update

Jan 5 2010 By nebusiness

RETAIL shares suffered a setback today despite stronger than expected Christmas sales figures from Next and rival John Lewis.

The sector gave back strong gains seen yesterday as investors noted cautious comments from Next about trading prospects in 2010, in particular its warning that the next six months were unlikely to match the last half year.

Financial stocks made up for the shortfall as the FTSE 100 Index recovered from a weak start to set another 16-month high above the 5500 level. By mid-morning, the top flight stood 21.1 points higher at 5521.7.

Royal Bank of Scotland rose 7% or 2.3p to 34.4p as the part-nationalised bank surged for a second successive session.

Sentiment has been boosted by positive broker comments, particularly from Exane BNP Paribas after it said better economic conditions should attract investors on a fundamental rather than speculative basis.

Other banks on the front foot included Barclays, which climbed 13.5p to 294.2p, while Lloyds Banking Group added 2.3p to 54.5p.

The retail sell-off was led by Next, even though it revised profit forecasts following like-for-like sales growth of 3.2% in the 22 weeks to December 24. The recent trading boost was more than offset by its comments that it expected a tough 2010 due to looming tax hikes.

Next shares fell 55p to 2084p, while Marks & Spencer dropped 8.4p to 404p ahead of its own trading update tomorrow. Sainsbury’s shares fell 4.9p to 319.3p and Tesco dropped 7.15p to 421.25p.

Cadbury shares were also under pressure after Swiss rival Nestle confirmed it was not planning a bid for the Dairy Milk firm.

US company Kraft also announced plans to increase the cash element of its £10 billion takeover, but this was not enough to offset disappointment over the lack of rival bids. Shares fell 2% or 14p to 791p.