London market: Computers turn on to added value

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The Independent Online
UK STOCKS could rise in the week ahead, led by computer-related companies such as Sage Group, with reports expected which show that the economy is growing free of inflationary pressure.

"There is obviously a large amount of money still looking to go into the computing sector," said Nat Jolowicz, a divisional director of Quilter & Co.

Gilts may rise for a second week if figures on retail and producer prices show inflation remains tame, which may boost hopes that the Bank of England will not raise rates much further. Gilts logged their first winning week in a month after the Bank left its key rate unchanged at 5.5 per cent last Thursday.

"There's further potential for gilts," said Steven Mansell, a senior fixed-income strategist at BNP Capital Markets. Reports this week should show "no sign of a runaway inflation problem" in the UK, he said.

The prospect of steady interest rates will make growth companies including computer-related stocks more attractive. By contrast, drugs, chemicals and paper stocks may decline as investors shun them for faster-growing companies.

People are "taking money out of what they see as relatively dull sectors and are investing in technology stocks," said Paul Whyman, a UK fund manager at Prudential Bache.

The FT-SE 350 Software index has surged 84.3 per cent since April, outpacing the FT-SE 350's 4.2 per cent climb. The FT-SE techMARK 100 index, which lists computer-related and biotechnology companies, has jumped 46.2 per cent since it began trading on 4 November.

As computer companies gain, makers of pharmaceutical and consumer goods, which offer less spectacular growth prospects, may extend declines. SmithKline Beecham Plc dropped 10 per cent last week, Glaxo Wellcome shed 9 per cent and Unilever slumped 11.2 per cent.

The benchmark FT-SE 100 index fell 0.04 per cent last week. Colt Telecom was the best performer, rising 25.2 per cent to 3072. Colt said it plans to sell pounds 700m in new shares and convertible bonds.