Market jitters hit Halifax price hopes

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The stock market's worst one-day fall in nine weeks provided a jittery backdrop for first dealings in two of the stock market's biggest new issues. Silk Cut to Benson & Hedges cigarette group Gallaher started trading well below expectations while forecasts for Monday's opening in new Halifax shares were reined in as the FTSE100 fell by 76 points at one stage.

The fall in the London market, worsened by a weak opening on Wall Street, dampened expectations for yesterday's auction to institutional investors of unwanted Halifax shares. Wall Street was left stunned in early trading by an unexpected profits warning from computer chip giant Intel.

The FTSE100 closed 51 points lower at 4621.3, the largest decline since 1 April, with exporters and banks, the market's star sector until yesterday, leading the retreat. Shares were falling even before the Intel warning, with political instability ahead of France's elections this weekend in the vanguard of investors' concerns.

Demand was lacking for Gallaher in the face of selling from US shareholders uninterested in holding a London-quoted stock. The former American Brands subsidiary closed at 275.5p compared with hopes the shares would reach 310p in early dealings. At that level Gallaher trades below the 282p level at which Goldman Sachs described the stock as an "aggressive buy".

Worries about tobacco litigation weighed against the stock, dealers said, despite the fact that Gallaher operates exclusively outside the litigation prone US. Meanwhile, the European Social Affairs Commissioner Padraig Flynn renewed his attack on the industry, condemning a price war in the industry as "a cynical attempt by the tobacco companies to recruit new smokers".

Mr Flynn, the EU's top health official, gave Gallaher the cold shoulder on its market debut, which came the day before World No-Tobacco Day. He marked the day with a welcome for the government's planned national ban on tobacco ads and sponsorship of sports events.

At the Halifax, all eyes were on the bids pouring into adviser Merrill Lynch from pension funds and insurance companies desperate to snap up the shares members wanted to sell immediately. The average price they bid before yesterday's 6 o'clock deadline will determine the size of windfall for the quarter of Halifax members who opted for cash rather than shares in the conversion of Britain's biggest building society to a publicly quoted bank.

Despite the fall in the stock market, analysts were yesterday forecasting that Halifax shares would start trading well above the company's intrinsic value. With only three weeks to go before the Halifax enters the FTSE100 index of leading shares, institutions are expected to be prepared to pay well over the odds to ensure they achieve meaningful weightings in the stock.

UBS banking analyst John Aitken put "fair value" for Halifax at between 620p and 645p, but expected the auction to see bids pitched at around the 725p level. "Obviously this is a big premium over fair value and it can only be accounted for by the scarcity premium," he said.

Confirmation yesterday morning that 23 per cent of Halifax's shares, a total of 568.6 million shares, would be sold immediately reduced expectations for the price that would be reached on Monday to the bottom of a 700p to 750p range. Gambles at City spread betting specialist IG Index were yesterday pointing to a 710p to 720p range.

Despite that many analysts felt that Halifax would see strong demand in the initial weeks of trading as market makers squeezed the stock ahead of its entry into the stock market's top flight.

If expectations are proved correct, Halifax will vie with Barclays for third spot in the pecking order of UK banks, with a market value of about pounds 18bn.

Whatever happens, the stock is certain to open considerably higher than the official valuation from Halifax adviser Deutsche Morgan Grenfell last December, which put a 420p price tag on the shares. At 700p, the average 330 share allocation would be worth just over pounds 2,300.

In the US yesterday, the New York markets were jolted early yesterday by an unexpectedly sober earnings warning from Intel. In early trading, the Dow Jones industrial average plummeted more than 80 points before recouping some of the loss.

The stock of Intel, the world's largest manufacturer of processor chips, slipped by as much as 12 per cent in the first hour of trading on the Nasdaq market with some 12 million shares changing hands. The huge sell- off followed a report from the company that it expected second-quarter revenue to be 5 to 10 per cent below the $6.4bn (pounds 3.9bn) earned in the first quarter. The extent of the earnings reverse took Wall Street by surprise.

By the lunch hour, the volume of shares traded on the technology-heavy Nasdaq had already reached three times its normal volume for a whole-day session.

The worst appeared to be over, however, with Intel shares regaining about half their early-day losses.

Intel blamed its plight especially on weak sales in Europe - a problem shared by all the chip makers. Meanwhile it said that its gross margin, a key measure of profitability, would slip below the 64 per cent achieved in the first quarter.

Such is the size of Intel - its Pentium processors are installed in 80 of the world's computers - its fortunes always have a far-ranging impact on the wider market, especially among technology stocks.