The US Federal Reserve chairman's cautious mutterings on US inflation weighed heavily on sentiment and caused a further bout of selling.
The FTSE 100 ended 90.4 points lower at 6,207.4. The index was on shaky ground for most of the session but really fell out of bed in mid afternoon, when a weak opening on Wall Street dashed any hopes of a rally.
The thin turnover, a traditional feature of the British summer alongside cricket disappointments and strawberries and cream, magnified the downward movement. Dealers said the leading index's plight had been compounded by two heavyweight brokers' decisions to sell a host of blue chips through large programme trades.
The end-of-the-week rout was the sixth consecutive closing loss and left the FTSE 100 more than 360 points lower on the week. Most market watchers took the 5.4 per cent drop in their stride, pointing out that the vagaries of summer often lead to sharp movements. However, a few pessimists are convinced that any move below the psychologically-important 6,200 level will set the alarm bells ringing.
The smaller indices could not escape the market's misery and the FTSE 250 closed 11.7 down at 6,010.1, while the Small Cap edged 4.6 lower to 2,726.0.
However, the second liners generated a few interesting takeover rumours. The construction and building materials group Tarmac, to be split into two next week, was ahead for most of the day before being knocked back by some late sellers. The stock settled just 1p higher at 123.5p but there was some intriguing talk that a foreign player, possibly the German giant Hochtief, could take a big stake in Carillion, the construction arm to be spun off from the building materials side. Hochtief's other possible target is Balfour Beatty, owned by struggling BICC, down 0.5p to 96.5p.
The biotechnology group Skyepharma was talked up by punters despite ending unchanged at 51.5p. They are convinced that a US drug group is preparing to buy a large stake in the company, possibly from chairman Ian Gowrie- Smith.
Rival Shire Pharmaceuticals firmed 7.5p to 565p after good results. Talk of a strike for Medeva, down 4p to 118.5p, or a US competitor is still there.
The sugar group Tate & Lyle was up a sweet 14p to 411p on bargain-hunting and vague takeover speculation, while Rank Group firmed 5.25p on whispers that the disposal of Tom Cobleigh pubs is close.
In the non-bid zone, Coca-Cola Beverages, Coke's bottling offshoot, rebounded 8.5p to 128p as investors said the EU probe into the parent company should not damage CCB. Pace-Micro beamed 7.5p better at 229p on rumours of a contract win, while engineer Berisford shed 11.5p to 260p on reports that its takeover of US group Scotsman Industries might be challenged by two rivals.
Granada provided the major bear stories in the FTSE 100, shedding 50.5p to 623.5p. The hotels and media group was hit by profit-taking after Thursday's sale of its stake in BSkyB to French conglomerate Vivendi. More imaginative dealers voiced the fear that Granada is lining up a major deal which could wipe out its cash mountain. For its part, BSkyB beamed 10.5p higher to 566p on hopes of a merger with the Vivendi-owned Canal Plus.
The retailer GUS was another big faller, losing 39.5p to 650p amid continuing talk of poor trading. Rival Storehouse fell 2p to 127p despite growing speculation of a bid from Debenhams, down 1p to 377p, or entrepreneur Philip Green. Water companies were awash with sellers as fears over next week's price review grew stronger. United Utilities, down 38p to 779p, Thames Water, 41p lower at 1010p, and Severn Trent, 31.5p worse at 934p, were the biggest casualties.
Cable & Wireless lost 32p to 765.5p after confirming talks over the sale of its stake in the Singapore mobile company MobileOne. However, its part- owned cable subsidiary Cable & Wireless Communications surged 9p higher to 699p on rumours that the merger of its business operations with US rival NTL is close. The American cable company is also believed to be close to bidding for the football and rugby club Newcastle United, up 5.5p to 87p.
A few analysts' notes caused some waves among big hitters. The mining group Billiton jumped 9.25p to 270.5p - the day's best blue chip - after HSBC said "buy". National Power surged 13p higher to 432.5p after a double push from Deutsche Bank and Goldman Sachs and revived bid rumours, while retailer Next climbed 11p to 712p after JP Morgan started coverage with a "buy".
Dixons did not need any analytical support to rise 31p to 1346p. Investors filled their boots ahead of Monday's Freeserve flotation, which is thought to be 10-times oversubscribed. Rentokil jumped 5p to 246.75p on continued hopes of a takeover.
Among the minnows, the electronic group Forward Technology rose 7.75p to 24p after receiving a 26-per-share management buyout bid. The software group JBA soared 51.5p to 248p after agreeing a 250p-per-share bid from Canadian rival Geac Computer. PR agency Holmes & Merchant firmed 3p to 23.25p on persistent rumours of a bid from Shandwick founder Lord Chadlington, while shoe-maker Church & Co was kicked 25p higher to a record 595p by bid speculation. Frock seller Forminster, the owner of the UK franchise for Kookai, plunged 10.5p to 56p after a profit warning. Leisurewear retailer Blacks Leisure firmed 16p to 257.5p on bid talk.
SEAQ VOLUME: 1.06BN
SEAQ TRADES: 75,880
GILTS INDEX: N/A
SOME HOT money is chasing BNB Resources. The recruitment and training specialist has recently hit a yearly record of 151p amid talk of a bid.
The shares have fallen back a bit since, ending yesterday 1p down at 145p, but insiders believe that the takeover story is still valid. BNB provides training services for a wide range of blue-chip clients - including Rolls-Royce, Deutsche Bank and Somerfield - and could be a good buy for one of its larger rivals.
SOME BROKERS are making positive noises on Toad. According to rumours, the maker of car and motorbike alarms is starting to put its chequered past behind it.
The company is said to have told a few analysts that trading is good and that finals, due at the start of August, could provide some pleasant surprises. Some optimistic punters believe Toad, whose shares have risen from 17.5p in October to yesterday's 27p, could even beat predictions of a pounds 2.6m profit.Reuse content