Market Report: Investec alert stokes fear of C&W profit warning

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Investors were bracing for a profit warning from Cable & Wireless after learning that the telecoms group has launched a vicious price war to win back business customers.

In a morning investment note that quickly gained currency throughout the Square Mile, Investec Securities advised its clients to cut their holdings of C&W shares. The company has taken the dangerous decision to slash prices to staunch a decline in sales.

As a result, UK profits could disappoint, warned Investec's respected telecoms analyst, Christian Maher. "C&W is pricing aggressively on several big corporate contracts currently," he wrote. "We believe that this is creating difficult trading conditions for several altnets [telecoms companies] but is also likely to precipitate further gross margin weakness in C&W's own business."

Only on Thursday, the company unveiled its broadband strategy. Although analysts welcomed the promise to generate £250m of broadband revenues a year by 2008, there were fears that C&W will have to offer ultra-low prices if it wants to get customers to sign up to its little-known Bulldog brand.

C&W shares tumbled 3p to 107p yesterday, a day when it was difficult to find a blue-chip stock ending lower. The FTSE 100 index surged to its highest close since July 2002, an outbreak of optimism that couldn't be pinned on any particular piece of economic news and in fact flew in the face of disappointing consumer confidence numbers from the US. The 34.5-point gain took the FTSE 100 to 4.591.0, a rise of 1 per cent this week. At its peak during the day, the index had touched 4,602.1, better than the previous intra-day high for the year, which was 4,601.6 on 23 April.

Those who believe that the global economy is in rude health were in the ascendency, and it wasn't just equities prices that were rising. Commodities, too, were headed for a second week of gains, as stockpiles ­ particularly of copper ­ have dwindled. Mining shares led the charge by the FTSE 100. Anglo American was 33p better at 1,296p; Rio Tinto jumped 38p to 1,448p; and the Chilean copper miner Antofagasta closed 27p higher at 1,072p. BHP Billiton, which also has oil interests and benefited from yesterday's rising crude price, came out best of all, its shares up 18.75p to a record 556.25p. Goldman Sachs raised its earnings forecasts for all the major miners, telling clients it now expects a 20 per cent increase in iron ore prices and, with customers resigned to the increases, miners might try to push through even higher rises.

There were rumours of a big share placing ­ perhaps of a stake as large as 5 per cent of the company ­ in Rentokil Initial, the troubled rat catcher. Its shares mustered only a 0.25p gain to 152p. And Man Group slid 5p to 1,339p on fears that the hedge fund manager's run of poor performance will lead to lower fees next year.

Shares in Reuters dipped 2p to 345.5p after The Independent revealed product delays and technical breakdowns that the chief executive Tom Glocer, in an e-mail to staff, said were hurting the company's reputation with customers.

Merrill Lynch came to the rescue of Reckitt Benckiser, the maker of Dettol and Vanish, whose shares had fallen on Thursday amid fears of a profit warning. The broker wrote a "buy" note, praising Reckitt's sales and profit growth prospects, and the shares rebounded a little, by 10p to 1,432p. There was a worrying tale doing the rounds, however: Reckitt is ready to come back with a new bid for SSL International, the maker of Durex condoms and Derbac head lice lotion. SSL's chief executive, Garry Watts, has been tidying up the business since last year's abortive takeover talks, and has sold the hospital products businesses to make the company more attractive to a consumer products group. SSL shares jumped 11p to 288.25p in heavy trading. The gossip in the market was that Reckitt will offer 350p, although that would be tough to justify to its own investors and really would send the company's shares sliding.

Bradford & Bingley was 3.75p lower 288.75p as it traded for the final time in the FTSE 100. It will be replaced on Monday by Cairn Energy, whose shares were up 35p to 1,525p.

Emerald Energy, the Colombian oil explorer, was up 9p at 157.5p after a magazine tip. And Tolent, the Gateshead-based construction firm, was 12p stronger at 135.5p after positive comment on its £80m order book, which includes work on a leisure complex in Sunderland and a giant office development in Leeds.

Stream, which sends sports and entertainment information to mobile phones, was up 1.25p to 38.75p after charming analysts. NSB Retail was 0.5p better at 25.5p thanks to a saucy tale about a contract to supply a big US retailer with its software. And Abacus, an electronics company with a trading update due next week, was up 9p at 244p on hopes for an upbeat assessment of prospects.