Market Report: Caught on the hop, but shares soar by pounds 13bn

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The Independent Online
THE stock market was caught on the hop by the 1 percentage point interest rate cut. Shares soared in often-hectic trading and government stocks scored gains approaching two points.

The FT-SE 100 index closed near its best level of the day, up 63.8 points at 2,835.7, lifting, Datastream calculated, the market's value by pounds 13.17bn to pounds 628bn.

It was the biggest one-day gain since the turmoil of September's devaluation, when shares soared on the removal of the exchange rate mechanism straitjacket.

Gains were widespread in the scramble to cover positions and take advantage of what many suspect will be a significant bull run. Interest-sensitive shares romped ahead; so did many recovery shares.

Turnover was the highest this year, with Seaq putting volume at 861.8 million shares.

Conventional gilts rose by a point; index-linked stocks, reflecting inflation fears, were pushed up to pounds 2 higher.

Drug shares, however, missed the party. Glaxo Holdings was particularly uncomfortable, down 13p to 682p in busy trading. The arrival of Hillary Clinton as the new power in the US health industry did the damage. It is expected that the new First Lady will attempt to push through a series of measures that will sharply reduce drug margins. With its huge US exposure and the high profits earned from its top-selling Zantac ulcer drug, Glaxo is seen as particularly vulnerable to any change in the US medical scene.

Fears of a cash call to finance a big overseas takeover also eroded the shares.

SmithKline Beecham, up 7p at 501p, and Wellcome, 2p better at 917p, lagged the advance.

Banks romped ahead. Abbey National was seen as an immediate interest rate beneficiary, already deciding to pass on less than the 1 per cent cut to its borrowers. The shares, with Barclays de Zoete Wedd offering support, jumped 22.5p to 380p.

Building materials and builders also performed strongly. Properties were in demand; so too were breweries and most leisure shares. Grand Metropolitan added 22p to 457p, enjoying the added spur of investment presentations in Scotland.

Food retailers had an active session, with J Sainsbury rising 17p to 572p. But Asda continued to be dogged by rights issue fears, improving a mere 0.5p to 66p.

Forte, the hotel group, put on 6p to 181p despite continuing worries about its dividend policy. BZW underlined the group's dilemma by cutting this year's profit forecast by pounds 10m to pounds 70m and next from pounds 120m to pounds 110m.

Rothmans International improved 28.5p to 631.5p, helped by positive noises from Hoare Govett. The securities house modestly upgraded its estimates but created interest by pointing out that the tobacco group's cash pile could soon exceed pounds 1bn.

Reuters rose 35p to 1,348p. It has linked with the US information provider Cantor Fitzgerald and is launching a revamped UK equities service.

Mirror Group Newspapers continued its advance, gaining a further 7p to 116p. The shares are now in the price range that could tempt the receiver of the Maxwell private companies to sell - or place - his 54 per cent shareholding. The shares were floated at 125p by the late Robert Maxwell in May 1991.

TI Group, the engineer, ended unchanged at 293p, reflecting cautious comments by SG Warburg.

Oils were firm following the Opec call for a production cut. With the Saudi Arabians and Iranians supporting a reduction there is a strong chance that the call will be heeded and the oil market could become much tighter. Simon Flowers at NatWest Securities believes the move could be 'a great deal more healthy for UK producers'.

British Petroleum rose 10p to 241.5p, Enterprise Oil 13p to 434p and Shell 17p to 547p. Pittencrieff, awaiting hive-off developments, rose a further 7p to 319p.

Maddox, the electrical group put together by the South African entrepreneur Hugo Biermann, rose 1.5p to 10p in busy trading. Its long-rumoured acquisition of a computer group from Strategem, unchanged at 105p, could be near.

Stylo, the shoe group, continued to draw comfort from the sale by hard-pressed Control Securities of its 26 per cent interest. The shares gained another 23p to 148p, a two-day gain of 40p.

Yield considerations offered support to water shares but electricities were less confident.

The mini-conglomerate Cannon Street Investments, one of the most active lower-division shares, rose 1.75p to 14.75p in brisk trading.

Shares soared on the surprise base rate cut yesterday, with the FT-SE 100 index ending near its best of the day, up 63.8 points at 2,835.7. The FT-SE 250 index improved 47.4 points to 2,951.6, a new peak. Turnover reached 861.8 million shares with 39,473 bargains logged. Government stocks were strong

Holliday Chemical Holdings is expected to arrive on the market in March. It should be valued at approaching pounds 200m. Analysts are visiting the group's Huddersfield headquarters this week and fund managers are due to make the trek north next week. Hoare Govett believes HCH will have to overcome investor suspicion following over-expansion by some chemical companies.

The securities house that pledged to deliver a near 15 per cent stake in Trafalgar House to Hongkong Land is due to supply the first 5 per cent next week. The remaining 10 per cent must be delivered by May. There is speculation that the stakebuilder is still short of stock although it has probably taken precautionary action. Trafalgar shares rose 6.5p to 99p.