Market Report: BT's downturn in uncertain climate adds to market anxiety

BT, figures next week, is suddenly dialling the wrong numbers. Two weeks ago the shares nudged 600p as the wires crackled with stories of new links with Microsoft, the US computer group.

Yesterday they fell 17p to 563p in busy trading with cautious comments from two investment houses and worries of further Brussels scrutiny undermining sentiment.

Third-quarter results, due on Thursday, are not expected to provide much impetus. A downturn seems inevitable with the stock market looking for around pounds 780m which would compare with pounds 944m. For the year around pounds 2.7bn is expected against pounds 3.2bn.

Lehman Brothers and ABN Amro Hoare Govett provided the cautious voices. Lehman switched its stance from outperform to neutral and Hoare Govett suggested the shares were overvalued.

The European interest, channelled through Oftel, involves BT's charges. Although unlikely to have a significant impact on the telephony group it was enough, in the uncertain climate now enveloping the shares, to add to market anxiety.

BT, which is still seeking an international partner following its unsuccessful MCI adventure, is one of the blue chips which could, if it so wished, bolster its standing through a share buy back. In May, as part of the aborted MCI deal, BT declared a special 35p dividend.

There is talk that BT will return up to pounds 5bn to shareholders, or 80p a share. Some think it should contemplate a pounds 10bn windfall (160p a share).

BT's discomfort occurred as the stock market reined back utilities, which have enjoyed special attention as the Asian crisis developed.

United Utilities fell 22p to 828p; National Power 13p to 652p and take over favourite Southern Electric 5p to 550p.

After a fitful day blue chips managed another triumphant flourish, riding to another peak. For much of the session it looked as though the index would finish on a negative note. But a late flurry produced a 23.3 points gain, lifting the closing calculation to 5,629.7. The previous peak, 5,612.8, was achieved on Tuesday. Supporting indices were also confident.

Take over speculation continued to generate excitement at, EMI, the showbiz group, up 20p to 490p. And, once again, there was whispers of corporate action on the financial front with National Westminster Bank leading the way, up 62p gain to 1,190p. Abbey National shrugged off its Far Eastern exposure, wiping out an early 39p fall to close 8p higher at 1,285p.

Although J Sainsbury's trading statement did nothing for shares of the superstore chain it provided a boost to Boots, up 38.5p to 893p, and Kingfisher,14p to 985p. Sainsbury's revelation that its Homebase do-it-yourself operation posted like-for-like sales up 9.8 per cent provided a reminder that the d-i-y market remains strong.

Other retailers were firm with Marks & Spencer 23.5p higher at 586p and Safeway, where rumours of Asda interest still drift around, up 8.5p to 376.5p.

Suggestions of expansion moves lifted First Leisure 13.5p to 297.5p and pubs chain JD Wetherspoon, recently ruffled by profit downgradings, put on 12p to 317.5p.

Biocompatibles International, last year above 1,400p, slumped 160p to 215p, its lowest since 1996 on the departure of chief executive, Alistair Taylor. The group is seeking a replacement. The shares have slipped since the company failed to clinch an expected US deal last year. British Biotech, which fell heavily on Thursday after European regulators delayed the launch of its pancreatitis treatment, staged a modest recovery, up 7p at 99p.

Misys, the computer group seemingly destined for Footsie membership, found the excitement a little overwhelming and slipped 85p to 2,417.5p.

Flextech, the pay television company, hardened 15p to 502.5p on news it is in talks with Microsoft to create an interactive television alliance.

British Borneo Petroleum Syndicate fell 9.5p to 326p in late trading after it plugged and abandoned one of its deep water Gulf of Mexico exploration wells. Hardy Oil & Gas, edged ahead to 287.5p after Merrill Lynch said buy. The group announced a commercial gas strike in Pakistan on Thursday.

Hanson, the building materials rump of the old acquisitive conglomerate, improved 9p to 289p on Robert Fleming support. The securities house suggests the shares are suffering from Hanson's past financial engineering. It believes it could suffer the indignity of becoming a bid target if its rating does not improve.

Watermark, the marketing and promotional group, shaded to 28p despite buying by directors. Clayhithe, an electronic group, gained 16p to 92.5p following a bid approach.