Market Report: Blue chips continue their retreat on Budget worries

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The stock market is looking more and more bedraggled. Footsie slumped 59.8 bringing this week's decline to a withering 189 points.

Gordon Brown's widely discussed Budget is the main influence behind the ragged retreat from last week's blue chip peak.

The spectre of higher interest rates following the May spending statistics and the futures and options expiry also took their toll.

The market witnessed hectic activity in the morning as Merrill Lynch and NatWest Securities appeared to lock horns. In the crucial 15 minute expiry period Footsie fluctuated between a 15 points fall and a 5 points gain.

Once the confrontation was over Footsie struggled higher but after lunch the index was assailed by new doubts and even a firm New York failed to offer inspiration.

The futures pit continued to have a debilitating impact on the cash market after the expiry with the September Footsie future. The main contract following yesterday's June expiry, looking vulnerable. The tussle between NatWest and Merrill Lynch appeared to go on throughout the session with the two said to be arbitraging between cash and future markets.

But the Budget, with the related issue of the discovery of an alleged black hole in the nation's finances by the National Audit Office, was largely responsible for keeping shares on the run.

The market was hypnotised by worries of what Mr Brown has up his sleeve. A windfall tax is a certainty although its scope has yet to be defined; institutional tax relief seems bound to suffer.

Stock market historian and rampant bear David Schwartz is not surprised the Brown Budget is having such an impact. Since the end of the War there have been five interim Budgets. And a bear market, he points out, has heralded each. The last set of interim measures, produced by the Tories in 1979, was preceded by 25 days of negative activity.

Yesterday's ragged Footsie display may have been less distressing if former building societies Alliance & Leicester and Halifax had become constituents. But they do not arrive until Monday. With some tracker funds allowed to buy just ahead of entry Halifax jumped 25p (after 38p) to 770p; A&L rose 4p (26.5p) to 603p. Vague stories the Chinese government planned to buy a Hong Kong bank lifted HSBC 11p to 1,860.5p. Before the excitement cooled the shares touched 1,903p.

The spirit threesome had an eventful but ultimately unrewarding session. Trading in Grand Metropolitan shares was again heavy, although no where near as hectic as on Thursday when LVMH lifted its stake to 6.29 per cent. After an early gain the shares ended 13.5p down at 590p. Guinness, busily traded, fell 12p to 593p. Evidence of the regulatory obstacles the two would-be merger partners face was the main influence behind the fall.

For a little while Allied Domecq seemed intent on carrying on from where it left off on Thursday. Buyers pushed the shares up 8p but by the close the price was enveloped in the overall malaise and was off 7p at 421p.

Rolls-Royce dived 8p to 244.5p. Stories a market-maker was stuck with 2.5 million shares and was desperately looking to unload was said to have done the damage. The shares were, it was claimed, acquired at above 260p earlier this week.

Matheson Lloyd's Investment Trust rose 5p to 124.5p as the rumoured bid from Goshawk Insurance duly arrived. The bidder already has 9.6 per cent of Matheson.

Commodity group ED & F Man put on 11.5p to 203.5p on the pounds 65.5m sale of its cocoa processing business to Archer-Daniels-Midland, the US group with a substantial shareholding in Tate & Lyle. Lonrho fell 2p to 128p. There are hopes it will accompany Monday's figures with details of any progress in the merger talks with JCI, the South African group. Interim profits will be around pounds 40m against pounds 60m.

CIA, the media buyer, edged forward 1.5p to 184p as the WPP advertising agency picked up a further 1.8 million shares, taking its stake to 12.8 per cent.

Premier Oil jumped 2.75p to 47.75p in busy trading as some anticipated a bullish development. Aminex's expected Tatarstan deal lifted the shares 4.5p to 80.5p. Tertiary oils had a good day with Emerald Energy, Tuskar Resources and Alliance Resources making headway.

American Port Services, the US sea ports and airports group, rose 1.5p to 154p on reports Jacobs, the expansionist shipping group, had acquired a near 3 per cent interest.