Market Report: Bears savage Lloyds TSB over consolidation rumour

LLOYDS TSB fell into the bears' pit yesterday amid rumours that it might join the consolidation wave engulfing the financial sector. The bank dropped nearly 4.5 per cent, or 39.5p to 855p, as a number of big sellers got rid of large lines of stock.

The Lloyds fire-sale appeared to have been triggered by rumours that the cash-rich bank is considering a costly acquisition. A bunch of super- bears peddled the wild story that Lloyds is considering entering the battle for NatWest, unchanged at 1,387p. With original bidder Bank of Scotland down 7p to 741.5p, believed to be plotting an increased offer, and mooted counterbidder Royal Bank of Scotland, 2p higher to 1,285p, sitting tight, a Lloyds intervention could throw the race wide open.

However, the market is not keen on a Lloyds intervention. Followers of the stock fear that the lender would spend time and money on a bid which has little chance of succeeding. Experts believe that the competition authorities would not allow Lloyds to buy NatWest because of the dominant position the two giants would have on the country's high streets. As a result, the Lloyds bid would only be a spoiler of BoS and RBS offers and would achieve very little apart from upsetting the Scottish rivals' applecarts.

Other dealers dismissed the Lloyds/NatWest rumour and suggested that the bank is looking at some of its smaller rivals, such as the Woolwich, up 1.25p to 372.5p, or Abbey National, down 4p to 1,084p.

The day's other intriguing story involved holiday group Thomson Travel. The stock fell 6.25p to 91.75p despite talk that something is afoot. Industry gossip suggests that the Spanish hotels group Sol Melia is having a close look, with a view to buying the Thomson family's 19 per cent stake or even to engineer a merger.

The rest of the market did not have the stomach to fight for a place in the sun. The FTSE 100 finished 4.9 lower to 6,550.8, dragged down by profit taking and a couple of heavyweight casualties. Not even an opening rally in the Dow, where computer giant Hewlett-Packard posted stellar earnings, excited the bulls. Volume, at 2.3 billion, was one of the highest recorded, boosted by pre-Christmas programme trades and huge turnover in Vodafone AirTouch. The undercard outperformed once again, with the midcap ending 33.1 better at 6,077.5 and the Small Cap rising 1.7 to 2,842.2

Cement-maker Blue Circle rose 17p to 315.25p on returning whispers of a strike from UK rival Hanson, up 14p to 483p, or France's Lafarge. The story was bolstered by talk that the same investors who bought Tarmac, 2.5p better at 559p, ahead of its takeover by Anglo American, 100p higher to 3611p, were piling into Blue Circle. Peers Aggregate Industries, 1.5p better at 71p, and Pilkington, up 1.5p to 88p, were also helped by bid talk.

Information group Reuters beamed 37.5p higher to 677.5p on talk of a big Internet deal and good performance by subsidiary Tibco on the US market. Huge volumes on Nasdaq were also said to have helped Reuters' Instinet trading division. Struggling British Airways flew 14p higher to 367.5p on upbeat news from German rival Lufthansa, while cigarette maker Imperial Tobacco puffed 22p higher to 722.5p on vague bid talk.

Vodafone rang up a 6.5p gain to 283.5p. A bid of at least 230 euros-per- share for Mannesmann is expected today.

A number of movements were distorted by rogue trades. Lemsip maker Reckitt & Colman coughed 43p up to 767p on the back of a daft trade well above the market price. Retailer Kingfisher rose 20p after a similarly ludicrous deal, although wild rumours of a bid were also heard. News of a meeting in Paris between chief executive Geoff Mulcahy and analysts added to excitement. Fellow retailers would have killed for a rogue trade to boost share price. Confirmation of the rumoured profit-warning by Arcadia, down a huge 29.5p to a 107.5p record low and disappointing news from Storehouse, 9p lower to 64p, rocked the sector. Marks & Spencer, down 17.25p to an eight-year low of 250.75p and Debenhams, 32p lower to a 193p all-time low, were two casualties.

Tech stocks continued to roar ahead. Set-top box maker Pace Micro buzzed 94.75p higher to a record 489.75p after a deal to supply US giant Time Warner. Computer group FI rose 55p to a record 605p on vague whispers of an acquisition. But eXchange Holdings shed 6p to 218.5p despite being included in the midcap in place of Vickers. Business services midcapper Ashtead jumped 7.5p to 174p on talk that its strategic review would soon produce corporate action. Returning bid rumours sent United Biscuits 3.5p higher to 227p.

Healthcare tiddler Villiers soared 4p to 14.25p as a group of investors, including the famous Colin Blackbourn, bought a near 6-per cent stake from institution Knox d'Arcy for 10p. The new shareholders believe that Villiers Internet-based healthcare technology will prove a winner. But recruiter BNB Resources plummeted 24p to 148.5p on rumours that bidder Electus has walked away from talks.

Electrical group Advanced Power Components jumped 41p to 146.5p on rumours of big deals, just like software group Clinical Computers, up 16p to 59.5p. Dealing screens provider Easyscreen rose 21.5p to 314p on talk of an IBM deal.

Exploration minnow Tertiary Mining debuted on AIM with a 7p rise to 15p.

SEAQ VOLUME: 2.32bn

SEAQ TRADES: 112,122

GILTS INDEX 107.59 -0.61

f.guerrera@independent.co.uk

THERE IS some talk that the stock market experience of industrial distributor Charles Baynes could soon come to an end.

Punters are muttering that a recent slump in the share price has convinced the board to launch a management buyout. The stock has slumped from a high of 143p three years' ago to yesterday's 48p and there is a growing feeling that investors will be better served by a cash offer to take the company private.

APPLIED HOLOGRAPHICS is sparkling amid rumours of a couple of large deals. The shares shone 9p higher to 277.5p - close to their 286.5p record - on whispers that two high-profile clients want to use Applied's holograms.

Insiders suggest that the company is well-positioned to win the fiercely fought auction to print the euro notes.

A big US group is also said to be interested in the reflective prints.