MARKET REPORT : Surprise C&W alliance sets the cable sector buzzing

Cable shares, for long one of the stock market's more neglected wavelengths, surged as the long running Videotron deal emerged.

The surprise four-way merger, although sending shock waves through the communications industry, received a rapturous reception on a day most shares were allowed to drift aimlessly.

Cable and Wireless, at the centre of the new alliance, for the first time showed signs of throwing off the disappointment over the failed BT merger bid, with a 26p jump to 467p.

The company is pumping its Mercury operation into a new vehicle which will also embrace Nynex CableComms, Bell Cablemedia as well as Videotron. It is intended to float the group, likely to be called Cable and Wireless Communications.

Nynex units switched on the day's best gain, up nearly 25 per cent at 119.5p. And Cable companies not involved in the four-way merger jumped on expectations they will soon feature in corporate activity as the sprawling, still highly unprofitable industry, is subjected to further consolidation. General Cable added 19p to 197p, Telewest Communications 12p to 135p and Flextech 20p to 588.5p.

But high flying BSkyB, which is likely to feel the impact of the new alliance, fell 18p to 678.5p; other television shares were also a little disconcerted.

Even BT was seen as a possible casualty, falling 4p to 354p. But the latest burst of excitement provided another shot for Pearson, up 12.5p to 742.5p.

C&W's role is regarded as another example of how a major group can improve shareholder value by spinning off parts of its operation. It will have 52 per cent of the new cable company. There is a suspicion that the deal could indicate possible developments at C&W's important Hong Kong Telecom off-shoot. It could, it is felt, dilute its 58 per cent shareholding in HKT in exchange for the Far Eastern group achieving a significant involvement in the Chinese telephone industry.

Footsie ended a lacklustre session with a 15.9 points fall to 4,057.2. Even a satisfactory pounds 2bn gilts auction, with a 3.57 cover, was ignored. Still, the supporting MidCap index managed a modest advance.

Standard Chartered was the worst performing blue chip, slipping 27.5p to 654.5p as HSBC James Capel cut its forecasts from pounds 848m to pounds 818m and pounds 975m to pounds 930m. Other stockbrokers also lowered their estimates.

British Energy's surge came to an abrupt halt as Morgan Stanley suggested a switch into National Power; Energy fell 4.5p to 121p and NP rose 5.5p to 385p. The remaining electricity distributors were firm on a combination of Cazenove support and take over gossip.

Bass was flat, off 11p at 787p on the Independent's report of growing Whitehall opposition to the Carlsberg-Tetley take over. Allied Domecq, with 50 per cent of CT, fell 4.5p to 469p.

BAA was lowered 10.5p to 505p. Tomorrow the Civil Aviation authority is expected to rubber stamp its earlier proposals about landing and passenger fees at the group's three London airports. The suggestions were seen as favourable for BAA and Lehman Brothers repeated its buy advice.

Rolls-Royce moved higher on US support. It is reported to have hopes of supplying spares to the Argentine navy. The shares gained a further 3.5p to 267.5p.

United Assurance, the merged Refuge and United Friendly, rose 14p to 455p with talk of a 485p "fair value". The new group could eventually emerge as a candidate for Footsie membership, prompting some front running by institutional buyers.

Reckitt & Colman's innovative special dividend lifted the shares 13p to 726p. A profit warning sent Low & Bonar, the packaging group, crashing 73.5p to 483.5p. British Steel fell 6.25p to 172.5p as SBC Warburg reiterated sell advice.

BTR eased another 1.5p to 253p. Its warrants attracted an 89 per cent take up, pulling in approaching pounds 200m.

Wembley was firm at 405p as its role as the nation's new super sports venue received support from the three main sports bodies which use the stadium. John David Sports, the latest sporting goods retailer to arrive, scored a rewarding debut, hitting 306.5p (after 310p) from a 285p placing.

There was just a flicker of interest in the Kwik Save food chain, where takeover talk is never far below the surface, as PDFM edged its stake to 17.07 per cent. The shares were little changed at 321.5p.

Arcadian International, the hotel group, held at 42.5p despite promising a substantial cash call, above the market price.