London Market: Nato onslaught depresses UK stocks

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The Independent Online
United Kingdom stocks may fall this week on reluctance to invest while military action continues in Yugoslavia. However, BP Amoco and other oil companies may stem the decline as crude oil gains.

"The war will subdue enthusiasm until we know what the outlook is," according to Nat Jolowicz at Quilter & Co. "People are always unwilling to make investments at times of uncertainty."

The FT-SE 100 Index fell 0.4 per cent on the week to 6139.2. Banks led the declines on concern over trading losses in emerging markets.

Oil stocks rose the most. Crude oil rose 4.8 per cent last week to $14.10 a barrel on optimism that oil producers will cut output enough to eliminate a worldwide supply glut.

OPEC joined other producers in agreeing to cut world crude supply by 2.7 per cent. "We have come back to oil stocks in recent weeks," said Vincent Auriac, at Apoge in Dijon, France.

Oil prices rose on the recovery of recession-hit Asian economies, which will "increase world demand for oil".

Defence companies may benefit from increased demand for military equipment if the Yugoslav conflict continues. British Aerospace rose more than 8 per cent. The company produces the Harrier jets in action over Serbia, and it helps to produce Tornado combat aircraft that are being used by the German air force.

"There are certain stocks that will benefit from the war going on, like aerospace," said Jolowicz, "and also those that supply the aerospace companies ultimately will gain."

Apollo Metals, which supplies metal to British Aerospace may also go up.

Gilts may rise as new evidence that the economy remained weak in the first quarter, bolsters expectations for lower interest rates.

"There's a fair amount of fuel for the Bank of England to be looking to cut again," said Michael Saunders, UK economist at Salomon Smith Barney. "They might hold off until May, then cut by 25 to 50 basis points."

Gilts fell on Friday, as the yield on the benchmark rose by 6 basis points to 4.55 per cent.

While bonds maturing in less than five years may rise on the rate outlook, "the long end of the market is a little more of a danger, because of international events," according to Andrew Milligan, at Morley Fund Management.