Inflation control good for shares

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Shares are seen marching higher in coming days, lifted by record gains in the US and optimism that inflation is under control on both sides of the Atlantic.

Bank, drug and oil stocks like Shell Transport & Trading, which helped the FT-SE 100 Index hit an all-time high of 4,796 Friday, are expected to lead the gainers again.

"The stock market is still going to go up [because] inflation isn't a problem," said John Ainsworth, the head of equities at Hill Samuel Asset Management. "We're still investing in the financials, the oils and pharmaceuticals."

Even so, engineering stocks like British Steel, building material stocks and other larger companies in the FT-SE 250 Index of medium-sized companies, could extend recent gains after lagging behind the benchmark index for most of the year. The FT-SE 250 has risen only 2.4 per cent this year, compared with the 18 per cent rise notched by the FT-SE 100.

"Selected stocks like the engineering companies look very good value," said Neil Worsley, a director at Lombard Odier. "Some investors are going to be looking for stocks that have been left behind."

The FT-SE engineering sub-index rose 2 per cent on Friday, its biggest one-day gain in almost three years, hoisted by this week's better-than- expected earnings from manufacturing companies like FKI.

British Steel will release full-year earnings on Monday. British Aerospace, jet engine maker Rolls-Royce and aerospace electronics companies could be active as executives meet in Paris for the air show extravaganza held every two years.

Thames Water is the only major UK company expected to post results next week.

Norwich Union Life Insurance Society begins trading on Monday. Investors don't expect portfolio managers to snap up shares in the insurer with the same fervour as with the sale of the Halifax and Alliance & Leicester, two banks that converted from building societies this year.

"It's not a must-have share," said Worsley. "I don't think there will be quite the same scramble."

Investors will be looking for clues on the strength of the UK economy for signs that inflation remains in check. Reports on retail sales and money supply are due out next week. Stronger-than-expected growth could spark concern that the newly-independent Bank of England will raise rates again.

AGNESE SMITH Copyright: IOS & Bloomberg