Hunger for bid rumours drives prices to a new high

MARKET REPORT

The market's appetite for bid rumours is insatiable and continues to drive share prices forward into uncharted waters. The FT-SE 100 share index yesterday soared 30.8 points to close at an all-time high of 3,593.0, with market-makers convinced that several more takeover bids will be made among the corporate elite.

Additional fuel came from better than expected US trade data and a larger than forecast decline in UK unemployment. With UK retail figures providing yet more evidence of consumer resistance to price increases, there were fresh hopes of a further cut in interest rates.

Royal Bank of Scotland remained at the heart of the bid speculation, which at one stage during yesterday's session drove the FT-SE index to an intra-day trading high just 2 points short of the 3,600 mark.

Strong buying on the futures market did indeed take the December contract on Liffe comfortably beyond 3,600. The contract closed at 3,628, having touched 3,633 at one time.

Many dealers believe that, barring any spectacular corporate and economic accidents, the bull run will continue and that the 4,000 level will be breached by the spring.

Shares in Royal Bank of Scotland, a constituent of the FT-SE 100 index, climbed another 20p to 554p amid more speculation of a 600p-700p bid from south of the border from Abbey National, 1p better at 568p.

Some analysts, though, are showing signs of concern about the strength of the Scottish bank's share price, particularly if a bid fails to materialise.

A report published yesterday by analysts at Lehman Brothers said that without bid speculation the fair share price would be around 425p.

Dealers, however, expect more consolidation in the banking sector following the Lloyds Bank merger with TSB. Excitement in the sector is also being generated by the merger mania among US banks, which was yesterday capped by the mother of all deals so far: Wells Fargo's $10bn stock swap bid for the rival Californian banking group First Interstate.

Bank of Scotland, ahead 5.5p, is also tipped by some analysts as a potential bid target. National Westminster Bank, up 16p to 660p, is seen as a possible buyer of either of the two Scottish banks.

Gartmore, the fund management group, put on a late sprint and finished 5p up at 293p on further rumours that BAT Industries, down 2p to 548p, was close to agreeing a pounds 400m takeover bid.

Trading volumes in bank and financial shares were again high and helped swell the day's total turnover to 787.2 million shares. Almost 10 million were dealt in Royal Bank of Scotland, 2.78 million in Bank of Scotland, and more than 4 million each in Abbey National and National Westminster.

Business was topped off by a programme trade covering more than 100 stocks, encompassing leaders as well as second-liners, bang on the closing bell.

The day's star prize for being the most heavily traded share went to Trafalgar House, the financially strapped engineering and construction group which owns the luxury QE2 liner.

Investors must be praying that Trafalgar's shares, which fell to another low, become appended with a bid rumour. However, some dealers said there was a rumour that Hongkong Land, the company's major shareholder with a 26 per cent stake, was unwilling to inject further funds into the group.

The price closed at 21p, down 2.5p. Some trades were struck as low as 18p, and a massive 70 million changed hands. Trafalgar's preference shares dropped 4.25p to 43p.

Dalgety, the pet food and agri-business group, also missed the party and fell 5p to 424p amid talk from the opening bell that a large line of 7 million shares was on offer.

Total turnover in Dalgety's shares exceeded 14 million, and the gossip proved to be right at the close, with a single transaction for 6.95 million being registered on dealing screens.

Most of the dealings occurred late in the afternoon, and the ticker was awash with chunky delayed trades towards the close. Several of the deals were each in excess of 500,000 shares.

Virtually all yesterday's speculative activity was confined to the leaders. Second-line stocks moved forward at a sedate pace and the FT-SE 250 finished just 4.4 points higher at 3,941.3. The FT-SE All Share rose only 0.1 per cent to 1,751.32.

The Spurs, though, go marching on as Tottenham Hotspur hit another peak with a 10p advance to 205p.

Star performer of the session was undoubtedly Bluebird Toys, which soared 97p to 367p on a distribution and marketing deal with Mattel and Disney.