London Market: Hopes for a rate cut fire stocks

UK STOCKS are likely to rise this week, led by Barclays and other banks on hopes the Bank of England will cut interest rates. Signs that global growth isn't slowing as much as expected could also lift shares. Gilts are expected to be little changed with yields near record lows also on expectations of rate cuts.

Engineering and chemical companies such as BTP and TI Group could gain on speculation that they will be the first to benefit from a pick up in economic growth.

"Against a background of falling interest rates our view remains that the economy will not go into recession," said Tony Hardy, equities manager at Church Commissioners. "UK banks are going to produce reasonably good results." He recently bought into Barclays, National Westminster Bank and Abbey National.

The Bank of England is expected to cut interest rates by a quarter point from the current 6 per cent when its policy setting committee meets. Lower interest rates are good news for banks as they lift revenue made from lending and increase the value of bond portfolios.

The FT-SE 100 benchmark index was little changed last week, adding 0.6 per cent to 5,896. The FT-SE Telecommunications index led gains, rising 3.25 per cent. TeleWest Communications gained 22.6 per cent to 278p, while Securicor added 12 per cent to 631.25p on optimism for further mergers and takeovers in the industry.

On Friday, the Government said British Telecom, may be able to buy the remaining 40 per cent it doesn't already own of Cellnet from Securicor. Shares in Securicor leaped 42.5p to 631.25.

Optimism over economic growth mounted on Friday after the US said GDP grew at an annual 5.6 per cent in the fourth quarter, compared with the 4.5 per cent forecast. Rising optimism over economic growth could boost engineering stocks, which would benefit from increased demand for machines as industry expands production.

"There is a transition happening in the market," Mr Hardy said. "People are taking profit on sectors that have done so well lately and are redistributing." He recently bought shares in chemical company BTP and engineers Weir Group, Senior Engineering Group and TI Group. By contrast, he has sold shares in Glaxo Wellcom, the UK's largest drug maker, and SmithKline Beecham, the second biggest.