Debenhams dives as FTSE falls on China curbs

China’s efforts to cool its over-heating property sector amid signs of a slow down in the world's second largest economy unsettled markets on Monday.

The FTSE 100 extended its fall after Wall Street opened lower in response to the moves in China.

Property bubble fears

China’s Shanghai Composite index crashed 3.7% overnight after the authorities issued tougher-than-expected measures to curb property speculation.

Shares in property developers slid after China's government imposed a 20% capital gains tax on home sales and higher mortgage rates for buyers of second homes in property hot spots.

The moves come amid increasing anxiety over the build-up of credit in China’s economy and the exposure of banks to the property sector.

Investor unease was heightened by China's non-manufacturing Purchasing Managers' Index falling to 54.5 in February from 56.2. Although the new reading was well above the 50 level that separates growth from contraction, it was the slowest rate of growth since September.

Miners and financials fall

Combined with nervousness over the impact of ‘sequestration’ spending cuts on the US economy saw the FTSE 100 fall 32 points, or 0.5%, to 6,347. The mid cap FTSE 250 also fell 0.5% or 80 points to 13,669.

In the US the Dow Jones industrial average slipped 26 points or 0.2% to 14,063 and the S&P 500 softened 2.5 points to 1,516.

In London mining and financial stocks were the biggest fallers with Kazakhmys (KAZ.L) slumping 6% or 35p to 555p and Rio Tinto (RIO.L) 3.5% or £1.22 off at £33.19. Anglo American (AAL.L) fell 2.8% or 54.5p to £18.45 after Nomura cut the stock to ‘reduce’ from ‘neutral’.

HSBC Holdings (HSBA.L), a popular bank among investors and a member of Citywire Top Stocks, fell 2.5% or 18p to 710p after its 2012 profits missed analysts’ forecasts. The bank declared a pre-tax profit of $20.6 billion (£13.7 billion), down 6% on 2011 and below analysts’ average forecast of $22.7 billion, according to Reuters. There was better news on the dividend where it plans to increase its first three interim payouts this year by 11% to 10 cents per share, reflecting growth in its Asia business.

Capita (CPI.L) was the biggest riser, up nearly 3% or 25.5p to 884p, after Berenberg raised its price target for the outsourcing company's shares to 955p from 87p and rated it a buy.

Car and lorry parts manufacturer GKN (GKN.L) followed with a 2.4% or 6.5p rise to 276p after Goldman Sachs removed the stock from its 'sell' list and upgraded it to 'neutral'.

Bunzl (BNZL.L) advanced 1.9% or 24p to £13.13 after analysts at UBS upgraded the international distribution group  to ‘neutral' from ‘sell’ and hiked its price target to £12.50 from £10. 

British American Tobacco (BATS.L) gained 1.6% or 56p to £35.62 after UBS and Citigroup raised their target prices on the Dunhill to Lucky Strike cigarettes maker.

Profits freeze hits Debenhams

But the biggest news came from outside the FTSE 100 as Debenhams (DEB.L) crashed 12.5% or 12p to 82.7p after a profits warning.

The UK’s second largest department store operator said trading in January had been ‘severely disrupted’ by the heavy snow fall. Promotional drives around Valentine’s Day and the school half-term holiday had not succeeded in recouping lost sales and had hit margins. As a result it expects first half profits of around £120 million, around £10 million less than analysts had expected.

Chief executive Michael Sharp insisted sales had since recovered. ‘Whilst the impact of the snow on the outcome for the first half is disappointing, it is now behind us and sales volumes have recovered,’ he said.

Kate Calvert of Cantor Fitzgerald was unimpressed saying it was Debenhams' 'second downgrade' this year, 'which starts to raise questions about its strategy and the sustainability of its UK profits short term'. She maintained her 'reduce' stance and put her 95p target price for the shares under review.

Debenhams is a popular stock with fund managers. It is a top 10 holding in the Old Mutual UK Select Smaller Companies fund run by Dan Nickols and the Schroder UK Growth investment trust run by Richard Buxton.

Carillion marked down on debts

Carillion (CLLN.L) slid 5% or 15.3p to 292.7p as analysts looked past a slightly better than expected 4% rise in 2012 profits and worried about overall debts of £813 million. Investec cut its rating from 'buy' to 'hold' and Liberum Capital said 'sell'.

See our FTSE data pages for the day's other risers and fallers.