Markets flat after topsy-turvy day

The FTSE 100 closed up 0.07 per cent to 6216.00 – after a day dominated by the Bank of England's inflation predictions.

Following the announcement by Bank governor Mervyn King that inflation could be above target into 2010, the FTSE dipped below 6170.

However, strong performance from the mining sector helped to buoy the markets – with Eurasian up 7.19 per cent, BHP Billiton up 4.85 per cent, and Vedanta Resources up 4.50 per cent.

Ryan Kneale, market analyst at City bookmaker BetsForTraders.com, said: "The mining sector has rocketed up this morning, not because of base metal prices rising, but because of fresh rumours regarding BHP Billiton and their attempts to buy smaller mining rival Rio Tinto.

"The rumours have been so persistent that you have to believe there is some truth behind them. I think it is just a matter of time before the merger is officially announced and I would definitely say a deal will be done by the end of the year."

The biggest falls of the day were recorded for FirstGroup (down 6.26 per cent), RBS (down 5.48 per cent), and housebuilder Persimmon (down 5.17 per cent).

Sainsbury fell 3.91 per cent, while Bradford & Bingley (B&B) was down 9.29 per cent on news of a £300 million rights issue.

Nick Raynor, investment adviser at The Share Centre, said: "Today we have seen Bradford & Bingley announce a £300 million rights issue, followed by the release of Sainsbury's final trading results.

"Firstly the rights issue announced by B&B's is likely to come as big surprise to investors, given the company only recently denied that it was planning to raise extra cash from shareholders.

"B&B is asking shareholders for £300 million and is offering 16 new shares at 82p for every 25 shares already owned. It appears the bank is following in the foot steps of RBS and HBOS by jumping in quick to give itself the best chance of raising the money needed. The company is claiming that the rights issue will help ‘reinforce its position as one of the better capitalised banks in the UK'."

He added that although the offer is fully underwritten by Citi Group and UBS, he was still concerned about the bank's exposure to the buy-to-let market.

"B&B is among those worst hit by the credit crunch, having traditionally taken a higher proportion of its funding from wholesale money markets as opposed to individual savers. As a result its share price has already fallen sharply this year."

Mr Raynor added: "On a positive note, results for Sainsbury's, the UK's third largest supermarket chain, are likely to have pleased investors today. Sales growth for the supermarket came in above expectations and the dividend was raised by 22 per cent to 9p.

"Figures were slightly overshadowed though by comments from the group's chief executive Justin King, cautioning that consumer budgets were ‘clearly under pressure' and he expects the market to remain ‘intensely competitive.'

"Despite positive performance indications, we would still only suggest a hold on the retailer as we have other preferences in the sector, such as Tesco."

Daniel Barnes