Blue chips take a breather but banks stay on the boil

MARKET REPORT

Blue chips, after a six-day winning run which lifted Footsie more than 200 points, paused for breath, although many of the front-running financials continued to make headway.

National Westminster Bank, up 19.5p to an 893.5p peak, was the centre of attention in late trading. Rumours swirled that a bid, allegedly at 1,070p a share, would be announced today by Prudential Corporation, the insurer.

Many were quick to dismiss the speculation as yet another example of a stock market ramp. Such a deal, they said, would make little, if any sense.

Whether or not the Man from the Pru hovers over NatWest, the strength of the story is yet another indication of the market's absolute conviction that takeover fun and games are about to break out in the high-flying financial sector.

NatWest, with a profit warning and the far reaching problems of its investment arm to tolerate, has surprisingly put on a strong market display, even if the shares have been overshadowed by the likes of Barclays and HSBC.

Paradoxically the NatWest investment side helped to keep bank shares on the boil. It told clients its preferred shares were Barclays, HSBC, Lloyds TSB and Standard Chartered.

NatWest Bank was conspicuous by its absence and, as if to rub salt into the omission, rival securities house Lehman Brothers said NatWest was a sell.

Lehman put a target price of 2,500p on HSBC, which had to live with its own investment arm, the old James Capel, eulogising its merits, claiming it was at least among the best of the banking fraternity,

The songs of praise lifted HSBC to yet another peak, up 26.5p to 2,177.5p. Barclays gained 26p to 1,308.5p and Abbey National 12p to 891.5p.

Insurances produced some strong features with General Accident up 41p to 947.5p and Royal and Sun Alliance 17p at 488.5p. Pru was little changed at 614p.

Schroders, 42.5p harder at 1,837.5p, was another financial in demand but Mercury Asset Management remained neglected, off 3p at 1,269.5p.

Footsie ended 15.2 points lower at 4,949. In early trading it hit 4,993. Trading was again often hectic with turnover topping 1.1 billion, the second day running the one billion level was breached.

Overseas buyers were still evident, although there appeared to be some relaxation in US interest and a tendency by a few domestic players to snatch profits.

The supporting FTSE 250 index was firm but the FTSE SmallCap again gave ground.

British Steel was the star Footsie performer. Its share buyback, orchestrated by Cazenove, took nearly 5 per cent of the capital out of circulation at 155p a share, leaving the price up 10.25p at 159.75p.

National Grid went to a 262.5p high, up 5p, on HSBC support and Reed International, up 11.5p to 619p, enjoyed positive comments from Goldman Sachs.

Rolls-Royce continued to fly out of its long dive, climbing 9.5p to 232p. The market sees the abolition of the Government's golden share in BT as a signal it will soon relax the restrictions on foreign ownership of Rolls and British Aerospace shares. Under present regulations foreigners can only hold up to 29.5 per cent of Rolls and BAe, down 3p to 1,337p.

BT, still smarting from the MCI fiasco, fell 5p to 440.5p in more heavy trading. BZW was said to have moved the shares to hold.

Jefferson Smurfit, the packaging and paper group, added 6.5p to 196.5p as the losses by its 46.5 per cent owned US associate heightened the belief that a transatlantic deal was near.

Shield Diagnostic jumped 50p to 570p and Drew Scientific, where there is talk of a rights issue, rose 12p to 117p.

The major drug shares, after recent strength, had a torrid session with Zeneca off 120.5p to 2,144.5p and Glaxo Wellcome 56.5p to 1,343.5p. SmithKline Beecham fell 42.5p to 1,204.5p. SkyePharma declined 12p to 76.5p on drug development delays.

Micro Focus, the computer group, collapsed 142.5p to 1,782.5p on the surprise departure of chief executive Marcel Gumucio.

MFI Furniture gained 6p to 151.5p, largely on the back of the windfall spending spree. Profit forecasts are hardening with pounds 90m top of the range.

Manchester United rose 15p to 685p on hopes of a Far Eastern deal; Martin Edwards, the club's chief executive, sold more shares - 80,000 at 680p.