Blue chips leave the rest behind

Market Report

IT WAS a stock market of two halves - the haves and have-nots. As the blue chip Footsie index scored a 59.6 points gain to 5,772 the second and third-liners remained in dismal and ragged retreat.

Telephone groups led the Footsie charge. BT was up 37p (after 51p) to a 741p closing peak as stories continued to circulate of a deal, perhaps a full merger, with the US group AT&T.

Orange, ringing a 54p gain to 605p following an investment presentation, and Vodafone, merely joining in the telephonic fun with a 25p uplift to 760p, also helped to dial Footsie higher.

But down among the under-card it was a very different story. The mid cap index fell a resounding 51.5 to 5,510.4. It has fallen for 10 consecutive trading days, sliding 456.2. The small cap index, off 36.6 to 2,624.8, has suffered a similar indignity.

The second and third-liners have had a strong run in recent months. After trailing miserably behind their Footsie peers, they staged a dramatic revival as fund managers and small investors decided blue chips had moved ahead of the game and the best value lurked on the under-card.

There was an undoubted buying stampede which, because of the lack of liquidity of many shares, pushed prices sharply higher. Now as some of the buyers feel it is time to take their profits they are finding it is difficult to exit such tightly held shares at realistic prices.

The dramatic retreat has led to some desperate sellers appearing on the scene, often prepared to accept what would be regarded as absurd prices.

Most of the mid cap shares are still traded under the transparent market- making system with only a handful graduating to the order book.

Said one dealer: "We are witnessing a very uncomfortable market; it's been a rude awakening for some of the younger fund managers."

Rumours of BT's proposed AT&T deal have been intriguing the market for nearly a week. The American group would represent a splendid consolation prize for BT following the loss of its planned MCI deal. Orange, where SBC Warburg has set an 800p target, was spurred by a new tariff package and network guarantee proposals.

Others to support the Footsie push were Halifax, recovering much of Monday's fall, and Schroders, where takeover hopes have an eternal quality.

BAT Industries, up 26p to 592p, was puffed higher on the back of a US court victory and Safeway, the stores chain, improved 12.5p to 383.5p as HSBC was thought to have adopted a more positive stance to what has become the lame duck of the big four retailers.

Overseas earners remained in the doldrums, hit by the continuing strength of sterling. RioTinto fell 26.5p to 680p; BTR 5p to 170.25p and Wolseley 17.5p to 355p.

Engineer Laird produced the day's main profit warning - and lost 82p to 306.5p for its trouble. It said interim profits would be nearer pounds 20m than last time's pounds 34.7m.

Another warning emerged from finance group London Forfaiting. The market slashed profit forecasts after the company, dogged in recent weeks by concerns over its extensive Asian exposure, warned profits would be "substantially" below expectations. With forecasts now in the pounds 30m area against pounds 47m, the shares plunged 71p to 263.5p. They were 481.5p a few months ago.

First Leisure declined 36p to 379.5p following disappointing profits, and another negative trading statement from Sears left the shares 4.75p down at 56.75p. Figures from Jarvis hit the shares 42.5p to 704p.

The rug was pulled from Carpetright, off 41.5p to 274.5p, by even poorer than expected results, and MFI, reporting next week, apprehensively dropped 4.5p to 69.5p.

Care UK, providing health care facilities, firmed 17p to 240.5p after confirming a bid approach and Galen, a drugs group which came to market last year, was suspended at 437.5p after disclosing it was in talks which could lead to a reverse takeover.

Oils were firm on the feeling that the next Opec meeting, starting in Vienna today, could attempt another round of production cuts, perhaps up to 1 million barrels a day.

But Opec is not the power it used to be and it has experienced difficult enforcing cuts as member states adopted their own line. Still British Petroleum gained 17.5p to 867.5p and Shell 5p to 414p.

Enterprise Oil, up 10p to 560p, was additionally buoyed by favourable analyst comment, with Lehman Brothers suggesting a 630p target price.

Taylor Nelson, the research group, fell 6p to 111p. Centenaire Blanzy plans to sell its 10.62 per cent stake through Cazenove. Its shareholding stemmed from its control of the Sofres Group, acquired by TN in November.

Hambro Countrywide, the estate agent, gave up 4.5p to 126.5p; a 33.5 million block went through at 123p as the demerger from the old Hambros was effected. It is thought the shares came from Guardian Asset Management, which had a significant stake in the estate agent even before the demerger. Under the terms of the split, shareholders received 0.9 of a Countrywide share for every one Hambros share.

Psion's recent strength appeared to come from a possible move into "the field of wireless information devices". Apparently a joint venture, with an unidentified partner, is being considered. Shares of the hand-held computer group ended unchanged at 281.5p.

Tadpole Technology firmed 1.5p to 16.25p after cutting interim losses from pounds 2.5m to pounds 994,000 but Ionica, the hard-pressed wireless telephone group, lost 6p to 28p.

DEAN CORPORATION, the building and property services group created by Stephen Dean, is creeping up on Superframe; it has picked up another 500,000 shares, lifting its stake to 29.45 per cent, just below the level which triggers a bid. It is thought Mr Dean hopes to galvanise the acrylic shop-fitting maker, possibly joining the board. But there is also the possibility he will roll out a full bid. Superframe, which came to market at 50p three years ago, held at 22p.

MEARS, the building maintenance company, firmed 0.5p to 12.25p. Takeover talk is in the air. There are suggestions one would-be bidder has decided to walk away. Placed at 10p in October, 1996, the shares hit a 13.5p high recently.

LPA, little changed at 73.5p, should lift profits from pounds 557,000 to pounds 900,000 this year and then hit pounds 1.16m, says stockbroker Greig Middleton.

SEAQ VOLUME 903.3m: SEAQ TRADES: 63,224 GILT INDEX: n/a