Market Report: Buffett stake speculation lights up Centrica

Centrica was firm yesterday after late-afternoon rumours suggested that the British Gas owner had attracted the interest of Warren Buffett, the American billionaire investor.

The market speculation was that Mr Buffett was after a stake in the energy group, with traders suggesting he may be ready to snap up as much as 3 per cent of the company.

"There is no doubt that at current levels Centrica is undervalued," said Simon Edrich, utilities analyst at ING Wholesale Banking, "The speculation is entirely possible."

The rumours took Centrica to an intra-day high of 308p; by the close, it eased back to 305p, up 4.5p.

Elsewhere, housebuilders were hit after Merrill Lynch said that "rather than stabilise as we had previously anticipated, the key spring selling period has seen a further deterioration in the mortgage lending environment". The bank, whose analysts spent four days visiting close to 60 new home sites in southern England, added that the "lack of mortgage availability remains the single most important constraint on housing activity – both of existing properties as well as new build".

Merrill downgraded from "buy" to "neutral" Barratt Developments, which lost 18.5p to 346.75p. Similar blows were dealt to Bellway, which fell 26p to 764p, and Redrow, which was down 6.5p at 286.25p. Bovis Homes, which was off 18.5p at 494p, and Taylor Wimpey, which lost 9p to 150.75p, were downgraded to "sell" from "neutral".

Overall, the FTSE 100 was down 18.3, or 0.3 per cent, at 6,034.7. The London benchmark was dragged down by financial stocks and by a weak start on Wall Street. The FTSE 250 shed 68.2, or 0.7 per cent, to 10,069.6.

Royal Bank of Scotland unveiled its much-anticipated £12bn rights issue, offering investors 11 new shares for every 18 owned at 200p per share, a 46 per cent discount to Monday's closing price. As investors digested the news, RBS stock slid by 14.5p to 358p. Others in the sector, including HBOS, which lost 20p to 520p, and Barclays, which shed 17.5p to 461p, were also hit by weak sentiment.

Record metals prices, and yet another spike in the price of oil, gave strength to miners and oil companies. The Eurasian Natural Resources Corporation shrugged off concern about the prospect of hefty export duties in Kazakhstan and soared to first place on the FTSE 100, gaining 8.71 per cent or 105p to 1311p. Kazakhmys claimed second place, gaining 62p to 1,694p, while Antofagasta was third, adding 28p to 830p.

Rio Tinto gained 148p to 6,385p, Xstrata climbed 85p to 3,998p and Vedanta Resources rose 23p to 2,438p. Among oil companies Cairn Energy was up 35p at 3,050p while Tullow Oil added 11p to 732p.

Meanwhile, Morgan Stanley initiated coverage on Thomson Reuters with an "underweight" rating, helping the stock record another day of decline, off 18p at 1,532p. "The multiple looks too aggressive to us, given the potential susceptibility to slowdown in the financial markets," the broker said. "Although approximately 50 per cent of [earnings before interest, tax and amortisation are] derived from defensive, high recurring revenue subscription-based businesses, the other 50 per cent of TR consists of lower-margin and more volatile financial business."

Morgan Stanley added that it preferred Pearson and United Business Media, both of which are rated "overweight" by the broker. Pearson closed down 7p at 658.5p and UBM lost 3.5p to 563.5p.

On the FTSE 250, Easyjet was hurt, losing 17.75p to 304p, after Morgan Stanley lowered its price target for the stock to 310p from 440p in a sector review. "We see no compelling reason to change our cautious view on the airlines sub-sector," the broker said, adding: "Jet fuel costs continue to spiral upward and hedging profiles are declining. Increasing evidence of a weaker consumer, and potentially business, traveller is also likely to compromise revenue generation this year."

Among smaller companies, Topps Tiles was weak as worries about a consumer slowdown weighed on investors. "There are two views with this stock," said Evolution Securities' Nick Brown. "Either people are not spending – when this prevails, the stock is hit. Or people don't have the money to move house, so they upgrade their kitchen and bathroom. And that obviously helps."

Punters opted for the former argument as Topps fell by 4.75p to 97.75p yesterday.

On AIM, Fiberweb slumped 17.5p to 37.5p after announcing the termination of talks with Israel's Avgol Industries 1953 Ltd.

But the mobile gaming specialist Probability added 3.5p to 69p after publishing an upbeat update. Monday night's rumours had suggested a significant increase in the company's fourth-quarter gaming revenues, and it confirmed the figures were up 25 per cent compared to the quarter before.