London market: Asia rocks the stocks boat

UK BONDS are likely to be little changed this week as the Bank of England is expected to keep interest rates unchanged at 7.25 per cent at its monthly rate-setting meeting. Stocks are expected to be mixed as the optimism about unchanged rates offsets concern about the effects of slowing economies in Asia.

"The MPC meeting will be the central focus this week, and with the market pricing in steady rates I don't see gilts doing too much," said Philip Shaw, chief economist at Investec.

Economic reports expected "will be of interest but aren't likely to move the market", he said.

The benchmark 10-year government bond yield fell 7 basis points to 5.70 per cent last week while the FT-SE 100 Index fell 84.9 points, or 1.43 per cent, to 5870.70. on concern that earnings growth worldwide may be stunted by the effects of the Asian economic crisis.

"It's hard to be very bullish right now," said Graham Campbell, at Edinburgh Fund Managers. "There will be very poor figures coming from Japan and Hong Kong and we'll see asset prices falling sharply."

HSBC Holdings was among leading decliners, suffering in step with its Hong Kong-traded shares. The parent of Hongkong bank was hit by concern the economy may tip into a recession.

HSBC regained some of its losses Friday when it said that first-quarter trading is in line with expectations and that it is confident of the future. Still, Britain's largest bank says it is suffering from Asia's problems.

"If we continue to see the Far East making an impact on European companies then we would expect that to knock earnings growth so expectations might have to be revised down," said Ben Elwes, at Henderson Investors.

"This could be a problem waiting to happen in continental Europe."

Investors will focus on interest rates this week. "I think, in the end, the next move in rates is down but it probably lies some months ahead," said Robin Marshall, head of European economic research at Chase Manhattan Bank.

"The hawks will be reluctant to acquiesce to a rate cut until there's some improvement in the labour market."

Among economic reports this week are purchasing managers' surveys of manufacturing and service industry activity, a survey of retail sales and figures for money supply and consumer credit.

Vodafone, Boots and Thames Water all report earnings.

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