Market Report: Currency chaos boosts gold and Continentals

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ENTHUSIASM for watching the collapse of the exchange rate mechanism showed no signs of abating yesterday. Investors continued to stock up on equities, singling out companies with large exposures to Continental markets.

Anything linked to gold, the old favourite safe haven in times of crisis and which climbed by dollars 8.60 to dollars 402.60 an ounce in early dealings, also generated strong interest.

Gold last topped dollars 400 during the Gulf war in 1991, and yesterday's rise was fueled by overnight buying by US investment funds.

'The funds have been looking for the right time to go over the hill, and last night was it,' one dealer said.

Expectations of lower UK interest rates were reinforced by the prevailing turmoil on the currency markets amid desperate attempts to salvage the marooned ERM.

However, Andy Hartwill, strategist at Paribas, said: 'I think the opportunity for a rate cut is limited regardless of what happens in Europe.'

He believes the Government will want to keep a rate cut in reserve to offset possible future tax increases.

Nevertheless, the session went down in the books as another outstanding one for volume trading unseen at the start of the summer season for several years.

More than 760 million shares went through, taking the week's total past 3 billion. There were more than 41,000 trades yesterday.

By lunchtime the FT-SE 100 share index had raced away to 2,939.5, only 18 points short of the all-time high set in March. However, it finished off its best level of the day at 2,926.5, up 8.9, after a dull opening on Wall Street and the closing of end-of-account positions.

Kingfisher was one of Footsie's best performers, hitting a 1993 high with a 17p spurt to 634p. Good news came in the form of the retailer's decision to convert its 8.5 per cent convertible unsecured loan stock into ordinary shares. The conversion rate is 46.119 ordinary for every pounds 100 nominal of stock.

There was no holding second-liners, and the FT-SE 250 hit an all- time peak - the third in as many days - with a 33.5 point surge to 3,306.5.

Government stocks also enjoyed another buoyant day, registering advances of around half a point.

It all added up to a mountain of good news for the merchant banks, which have been enjoying the best of both worlds of the surge in equity and foreign exchange dealings.

Kleinwort Benson, due to report interim results next week showing a profits recovery to above pounds 21m, rose by 6p to 438p - a high for the year. Hambros firmed 4p to 365p, just 5p off its high, Schroders added 23p to pounds 10.83, and SG Warburg set a fresh peak for the second day running with a climb of 22p to 769p.

Clearing banks, however, missed the boat with Lloyds' interim figures causing both disappointment and rekindling fears of rights issues.

Lloyds, strong for most of this week, retreated 25p to 557p, Barclays eased 5p to 482p, Abbey National shed 6.5p to 383p, National Westminster slipped by 6p to 494p and TSB closed 1.5p softer at 204p.

The main shares in favour on the back of hopes for lower Continental interest rates included building materials groups. Hepworth increased 12p to 383p, Redland gained 11p to 515p, and RMC finished 8p ahead at 805p.

MB-Caradon, which rose 11p to 293p, also benfited from a Goldman Sachs recommendation.

Evered Bardon, another building materials company, firmed 2p to 47p on fresh takeover rumours. A chunky 3.9 million were traded. Charter Consolidated, up 8p to 672p, is tipped as the likely predator.

BPB, the plasterboard maker, put on 6p to 231p after announcing further progress in the first quarter of 1993/4 to shareholders at the company's annual meeting.

Arjo Wiggins, the paper and packaging company, also benefited from hopes of improved trading prospects on the Continent and burst through 200p with an 11p rise to 205p.

Action among the gold stocks encompassed a 17p rise to 355p in Harmony, a 73p sprint to 901p in Freegold, a 22p gain to 426p in Harties, and a pounds 7 rise in Vaal Reefs to nearly pounds 63.

Closer to home, companies with interests in gold to benefit yesterday took in Lonrho. Shares improved 5.5p to 132.5p.

Cluff Resources closed 2.5p better at 39.5p, after 43p at one time, and Monarch Resources rose 10p to 184p.

Motor-related issues generally firmed a couple of pence on good expectations for new car registrations in August. Dagenham Motor closed 3p better at 108p, T Cowie put on 2p to 255p as did European Motor to 131p, and Perry Group added 3p to 183p.

GKN, the motor components maker, climbed 17p to 494p ahead of interim figures next week and on talk of an imminent Kuwaiti order for Warrior armoured vehicles.

Water utilities continued to feature for their high yields. Anglian rose 8p to 494p, Thames by 9p to 498p, Southern by 12p to 524p and Yorkshire by 6p to 505p.

ShareLink's debut was a runaway success. Issued at 250p, the price closed at 288p. Turnover exceeded 3 million. A return to profits boosted Heritage by 11p to 69p.

Hornby Group, up 11p on Thursday, rose another 2p to 146p yesterday, sparking speculation that a predator could be about to pounce for the Scalextric and train-set maker. The company is not aware of any stakebuilding, saying its share register is not showing up any unusual entries. The price rise has come as Kleinwort Benson has reduced its holding from 3.02 to around 1.7 per cent.

A main shareholder in Tepel Diagnostics, which made a spectacular entrance on the USM last September, is leaving the board. Terry Colley, marketing director of the biotechnology company and owner of a 15.2 per cent stake, is starting his own consultancy business. He has been retained as a consultant and will remain a director of Tepnel Medical. Shares in Tepnel, floated at 120p, stand at 210p.