Market Report: A chill eastern wind cools things down

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The Independent Online
FAR EASTERN influences combined to cool the stock market temperature as two blue chips, British Aerospace and HSBC, felt the sudden blast of selling pressure.

BAe, down 14p at 454p, went into a tailspin as worries resurfaced about its important jets deal with Taiwan; HSBC dropped 40p to 724p when its 61 per cent-owned Hong Kong subsidiary, Hang Seng Bank, produced disappointing profits.

The market had started in lively style, seemingly intent on another strong advance. At one time the FT- SE 100 index was at a new trading peak, up 15.6 points at 3,089.2.

But the latest US/Iraq flare-up dampened enthusiasm and with BAe and HSBC causing some disquiet shares gave ground as the weight of buying eased and some profit-taking appeared. Even so, after dipping 18.8 the index rallied towards the close, with the fall cut to 8.1 at 3,065.5.

BAe, the best-performing blue chip of the year as its chairman, John Cahill, has dragged the once- ailing group from the depths of despair, has been involved in protracted negotiations with the Taiwan Aerospace Corporation about a pounds 250m joint jet venture.

It has become clear in recent months that the Taiwanese are not finding it easy to raise the cash for their slice of the action. A senior Taiwan minister fuelled the latest uncertainty when he warned that the project could collapse if the funding problems were not resolved.

Agreement is now months overdue and there is talk that the proposed final structure of the agreement, a key element of the Cahill reshaping, may have to be changed. Mr Cahill is due to fly to Taiwan on Monday.

HSBC, the Hong Kong & Shanghai Banking Corporation, which owns Midland Bank, has been the year's best-performing banking share. It had been expected to produce outstanding interim profits when it reports at the end of the month.

But the Hang Seng performance, an unconvincing 17 per cent advance, prompted some to trim their forecasts.

Others with a big Hong Kong exposure suffered in sympathy. Standard Chartered dipped 25p to 964p and Cable and Wireless 6p to 842p. Inchcape was lowered 5p to 545p.

Barclays, the banking group, responded to the arrival of Martin Taylor with a 19p advance to 491p (representing a 2.1 point Footsie gain) but Courtaulds Textiles, his former abode, tumbled 15p to 548p. At one time the shares were down 40p.

Away from situation shares the market enjoyed good two-way trading with turnover again heavy, at 836.9 million shares. Overseas buying was evident, countered by the determination of some domestic investors to lock in at least some of their profits. The market remains very squeezy; market-makers, who must have been hugely relieved that the breathless stampede petered out, remain on the defensive.

The biggest US trade deficit since the alarming days of the October 1987 share crash was largely ignored, with New York moving into positive territory before London closed.

Breweries, which have missed much of the party, showed signs of trying to catch up. But best levels were not held. Drugs, however, more than held their own and food retailers continued to stage a steady revival.

High-yielding utilities felt the strain although gains were not entirely wiped out. Yield support was behind a 4.5p gain to 220p by Ladbroke, the betting and hotel group. Interim results are due next month. Profits are expected to be lower - pounds 68m against pounds 79.4m. The half-time dividend is forecast to be unchanged at 4.92p and a same- again year's dividend would give the shares a yield of more than 6 per cent.

Compass, the caterer, improved 18p to 566p as SG Warburg made positive noises. Hoare Govett encouraged Cadbury Schweppes and Hillsdown Holdings higher.

But First Leisure Corporation again felt the impact of the Cazenove downgrading, off another 13p to 306p. Euro Disney's shrinkage continued, off 20p at 635p.

Granada, thought to have embarked on a round of analyst meetings, edged forward 2p to 446p, with Kleinwort Benson first off the mark wih a buy recommendation.

Reed International rose 18p to 703p as its takeover of the US Official Airline Guides edged closer. Bullish comment from James Capel and Societe Generale Strauss Turnbull contributed to the advance.

Dawsongroup achieved the day's best gain. A strong profit advance by the transport group left the shares 60p higher at 303p.

Singer & Friedlander improved 3p to 80p. The Peter Cundill investment group sold 1.5 million shares, making a 3.5 million disposal this week. It still has 5.71 per cent of the merchant bank.

Scantronic edged ahead 1p to 88p. After the market closed it was disclosed that Chris Brookes, chief executive, had sold 550,000 shares at 86p for tax reasons. His holding is now 1,879,399 shares.

Palmerston, the property group, fell 1p to 9.5p. Talks are going on for a reconstruction. A cash injection by an outside investor is being discussed.

The FT-SE 100 index slipped 8.1 points to 3,065.5 and the FT-SE 250 index lost 8.9 to 3.486. Turnover was 836.9 million shares with 41,393 bargains. The account ends on 3 September with settlement on 13 September. Government stocks were lowered.

Rodime, the disk-drive pioneer, which now endeavours to make a living by licensing and patenting its technology, spun 2p higher to 10.5p as directors picked up shares. Malcolm McIver, chairman, bought 1.9 million and Peter Bailey, managing director, 3.6 million. Other in-house buying scooped up 3.6 million. Once regarded as a promising computer player, it has claims against six leading groups.

Monument Oil & Gas improved 1.75p to 46.25p with NatWest Securities drawing attention to its Irish Sea operations. The group has made what is described as an 'exciting' discovery in Argentina. The shares have struggled against the falling oil price but have outperformed. Growth prospects and a 6 per cent discount to net assets give the shares 'good long term value', NatWest says.

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