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Stock market report: Monday latest

Share prices plunged back below the 3800 support level today to trade at their lowest for six years after Europe’s biggest bank, HSBC waded into the Square Mile to tap shareholders for a record pound;12.5bn.

A growing number of leading companies are queuing behind HSBC to ask City investors for emergency funds to help them through these troubled times. Battered broadcaster ITV and property developer Segro, the old Slough estates, are this week expected to seek cash. The big question is: for how much longer will fund managers be happy to keep dipping into the coffers to keep companies afloat?

It’s just another problem that the stock market is being forced to take on board, but there are signs it may already be struggling. Investors were heading for the sidelines today after another sell-off on Wall Street on Friday. The US economy contracted by 6% in the fourth quarter as the recession deepened, and there are growing fears that the $1.7 trillion stimulus package may not be enough.

The FTSE 100 index tumbled 127.11 points to 3702.98, its lowest since April 2003. The banks led the retreat, Royal Bank of Scotland tumbling 3p to 20.2p, HSBC 49¼p at 442p, Barclays 6.4p to 87p and Lloyds Banking Group 5.2p to 53.1p. Miners also came under selling pressure amid continued signs of falling demand for raw materials. Rio Tinto shed 115p to 1686p, Anglo American 63p to 938p and Xstrata 42½p to 653p.

Morgan Stanley remains overweight in BP ahead of tomorrow’s strategy review. Its target of 650p implies there is scope for a 45% improvement in the current share price of 425p, down 23¼p. BP’s management is expected to confirm-that the group is well-positioned to weather a substantial and prolonged downturn in the macro-environment.

The broker says sticky costs, a deteriorating downstream and lower commodity prices imply substantial downgrades to consensus earnings for the integrated oil and gas companies, and BP will not be immune. But it adds that, with the shares yielding 9%, these risks, alongside concerns on the dividend, look priced in.

Tate & Lyle dipped 1p to 264p after UBS lifted its rating from sell to neutral. It has cut its target from 315p to 270p because the sweeteners producer is closer to breaching banking covenants than previously thought. But it says any downside in the shares appears limited despite the deteriorating economic environment and a possible delay to the start-up of its new Fort Dodge starch and ethanol plant in Iowa.

Citigroup has cut its target for power generator Drax from 500p to 475p ahead of tomorrow’s results, to take into account the weakening energy market. Profits before taxes, depreciation and amortisation are expected to be 12% lower at £440m.

Far east shares posted sharp falls this morning after Wall Street set the tone on Friday, the Dow slumping to its lowest in almost 12 years on the news that the US economy has contracted further.

Tokyo’s Nikkei 225 average closed down 288.27 points, or almost 4%, at Mitsubishi UFJ Financial Group and other banks were in retreat on concerns about the US financial sector while exporters fell on worries about the American economy. Tokyo’s index of banking shares slid 4.8%. Chip-related shares also dived. Tokyo electron was down 4.2% to 3200 yen, TDK fell 5.8% to 3080 yen and Kyocera lost 5% to 5560 yen.

Hong Kong shares tumbled as wary investors braced for further bad news from banks ahead of their earnings figures. Trading in HSBC was suspended as the global leader unveiled its rights issue alongside its 2008 results. Analysts said concerns over a drain on US government reserves from bailing out troubled global financial institutions such as American International Group put additional pressure on sentiment.

The Hang Seng index finished down 494.11 points at 12,317.46.

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