Evidence of profit-taking as investors pause for breath

LONDON REPORT: Stocks finished lower yesterday as investors paused for breath after recent strong gains.

FTSE 250: 4,843.20 (-36.70); FTSE SmallCap: 2,056.00 (+0.90)

Profit-taking was evident in the trading pattern at the sector level, with stocks that are sensitive to movements in the overall market faring poorly, while defensive shares, which have lagged recent advances, featuring among the gainers.

The FTSE 100 closed 0.3 per cent lower at 4,115.7, while the mid-cap FTSE 250 slipped 0.8 per cent to 4,843.2. However, bulls were encouraged that the FTSE 100 gave back only a part of Monday's 2 per cent gains. Volumes were 2.6 billion.

Reuters, the global information provider, closed down 3.8 per cent at 175¼p. "The shares have had a good run, in line with a number of cyclical stocks, and the sector as a whole was ripe for profit taking," said one market maker.

Elsewhere in the sector, WPP, the advertising and media group, which was reported on Monday to be considering a bid for struggling rival Cordiant Communications, fell 3.3 per cent to 506p, while pay TV group BSkyB slipped 2.2 per cent to 655p. Analysts expected BSkyB shares to be volatile ahead of the forthcoming re-negotiation of the Premiership football contract.

Fund management groups also succumbed to profit taking, with Amvescap off 4 per cent at 381p and Schroders 2.2 per cent lower at 670p. Benefiting from the shift in favour of defensive stocks, utility Scottish Power added 2.3 per cent at 376½p, while Diageo, the drinks group, gained 2.1 per cent to 672p.

Tesco, the UK's largest supermarket chain, added 3 per cent at 215½p to lead blue-chip gainers while rival J Sainsbury slipped back by 0.9 per cent to 267½p after Citigroup Smith Barney suggested a switch from Sainsbury into Tesco.

"Tesco has been the better longer-term performer, but in recent weeks, Sainsbury has performed well on the back of press reports regarding the securitisation of its fixed assets," the broker said. "In our view, on fundamental grounds, Tesco is due a bounce."

Capita, the support services group, was the biggest faller on the FTSE 100, off 4.6 per cent at 224¾p, a drop attributed both to jitters over the forthcoming FTSE quarterly reshuffle and slow progress by the company on its share buyback programme.