Banking bounce stalls on Barclays downgrade

A DOWNGRADING in Barclays shares, which responded with a fall of 28p to 2203p after briefly touching 2190p, was putting the brake on a much-needed rally by the banking sector today.

Broker UBS Warburg has lowered its recommendation on the shares from buy to hold because it believes they are too expensive, but is maintaining its 12-month target price of 2300p. The Swiss-owned broker is also concerned that Barclays' chief executive Matt Barrett may be about to hit the acquisition trail. Only last year it bought mortgage lender Woolwich.

Rival broker Charterhouse Securities yesterday repeated its sell recommendation on the shares, but raised its fairvalue price from 1707p to 1915p.

The sector has made a poor start to 2002, overshadowed by the collapse of the Argentinian economy which has led its government to default on billions of pounds of loans. Abbey National,

off 3p at 1015p, has already admitted to writing off pounds 115 million and yesterday HSBC, 31/2p firmer at 7771/2p, declined to comment on reports that its exposure to Argentina could be as high as pounds 1.3 billion.

Broker WestLB yesterday downgraded HSBC from underperform to sell and slashed fair value from 706p to 632p.

Lloyds TSB fell 2p to 711p but Royal Bank of Scotland put on 16p to 1711p and HBOS added 6p to 803p.

The rest of the market rallied from an opening fall, reflecting a drop in retail prices during December that could provide scope for a further cut in interest rates. The FTSE 100 reversed a fall of 31 points, its seventh consecutive day of decline, to trade 13 points up at 5126.5. All eyes will be on key US retail sales data today.

Debt-laden Marconi slipped 13/4p to 37p, after touching 32p, on turnover of more than 120 million shares on news of more

job losses and falling sales. Broker Williams de Bro has downgraded the shares from hold to sell, and whispers circulating in the Square Mile claim one of the German banks has slashed its target price to 10p.

Broker ABN Amro was behind the push in drinks giant Diageo, up 161/ 2p at 7851/2p, making it the best performer among the top 100 companies.

GlaxoSmithKline rose 6p to 1703p on whispers that the US Food and Drug Administration is about to approve one of its drugs currently on trial.

Goldman Sachs remains a buyer but

says patent challenges in the courts could hold the shares back short-term.

P&O Princess was 1/2p firmer at 4031/2p. US securities house Lehman Brothers says it expects an enhanced bid of 500p before the end of the week with preconditions linked to the terms of the deal being relaxed. South African Breweries fell 10p to 467p. It believes beer volume growth for the year will be similar to that of the first six months - slightly up.

Business support services group Amey firmed 6p to 3971/2p after saying full-year profits would be in line with City expectations.

US securities house Morgan Stanley is telling clients to buy ahead of those results in March, and expects the uncertainties relating to London Underground to abate during the next couple of months.

Contract caterer Compass firmed 61/2p to 498p on the back of positive comments from Morgan Stanley. Goldman Sachs rates Compass a buy and has set a target price of 600p.

_Prices and indices in this section are supplied from various sources and calculated at different times and may not always match those listed in the tables. Ofex prices relate to the previous close.

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