BA stays aloft as FTSE dives below 6,000

British Airways outperformed though the FTSE 100 closed below 6,000 for the first time since the height of the credit crisis in August.

Shares in the airline company extended recent gains when rumours of stake building by a rival based in the Middle East, possibly Etihad of the United Arab Emirates, intensified.

Goldman Sachs, which on Wednesday upgraded its rating on the stock to "buy", said a carrier backed by a sovereign wealth fund would face no constraints in taking a big minority stake in BA.

"We continue to view BA as the 'jewel in the crown' in European aviation due to its high returns, Heathrow real estate (landing slots) and its uncluttered business model," the broker said.

BA closed 4.3 per cent higher at 289½p with volumes swelling to 30m shares - twice the daily average.

In the wider market, it was a volatile session with leading shares falling 1.9 per cent in the morning, then recouping all those losses, then closing sharply lower.

The FTSE 100 ended 82.7 points, or 1.4 per cent, down at 5,942.9, extending losses since the start of the year to 514 points or 8 per cent.

Elsewhere, the FTSE 250 dropped another 138.9 points, or 1.4 per cent, to 9,626.9, and it is now in bear market territory. (The index has tumbled 21.2 per cent since reaching a record high of 12,220 in May).

Market turnover was heavy with more than 5bn shares changing hands.

Mining stocks were responsible for much of Wednesday's weakness. The sector took 40 points off the FTSE 100 when metals prices went into reverse amid growing fears about the outlook for global economic growth.

Rio Tinto, off 6.6 per cent at £46.65, was the hardest hit in spite of rumours of an increased offer from BHP Billiton, which itself slid 5.3 per cent to £14.06. Elsewhere, Vedanta Resources eased 5.3 per cent to £18.85 on rumours that it was lining up an offer for First Quantum Minerals, a £2.8bn Canadian mining group also quoted in London.

London Stock Exchange was also under pressure, falling 5.7 per cent to £16.14 after Sanford Bernstein warned the company faced considerable competition and could miss profits forecasts this year and next.

"Changes in technology allow meaningful competition between equity trading platforms in Europe for the first time," Bernstein said, as it started coverage of the LSE with an "underperform" rating and a £16 target price. Unlike many of its rivals, the LSE has little exposure to the fast-growing derivatives market.

Cable and Wireless, off 3.5 per cent at 164½p, was another laggard and also hit by a broker downgrade.

Cutting its rating to "equal weight" and target price to 190p, Morgan Stanley flagged recent weak results from C&W's operations in Jamaica and said underlying group profits had been boosted by a contribution from the telecoms company's pension fund.

Property stocks attempted another rally after JPMorgan said it was time to "think contrarian" and buy certain stocks such as British Land, which put on 4.4 per cent to 920½p, and Segro, which climbed 6.2 per cent to 473½p.

"In December we wrote a 'time to buy' may occur if stocks drop by 14 per cent. We believe the time has come, and advise buying selectively, given the downward spiral in property values," analyst Harm Meijer said.

AstraZeneca added 3.2 per cent to £22.99 after a push from Goldman Sachs.

"Fundamentals remain difficult and the long-term story is not compelling but at current levels we believe AZ represents a mean reversion play and, as a result, offers a compelling short-term trading opportunity," it said, as it upgraded to "buy".

Compass, the contract catering company, added 3 per cent to 308p after being tipped by Citigroup in a sector review.

Dimension Data was the biggest faller in the FTSE 250, losing 13.3 per cent to 49p after Goldman Sachs added the South African information technology company to its "conviction sell" list. The broker said it was concerned Dimension was vulnerable to profit taking after its recent strong run. Dimension shares have risen 26 per cent in the past year.

Premier Oil eased 1.8 per cent to £12.91 as takeover rumours faded. The company announced a deal with Emirates International In-vestment Company to pursue acquisitions in the Middle East and North Africa.

HMV rallied 4.4 per cent to 101p as short sellers closed positions before Thursday's trading statement. HMV is the most shorted stock in London with around 36 per cent of its free float on loan.