Market Report: Disappointing budget encourages late profit taking

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Profit taking and a sudden reverse in New York took the impetus from the stock market's brave Budget rally.

Early yesterday it looked as though Footsie would charge through 4,100 points. As the Chancellor started speaking it was comfortably riding at a peak. But when the market closed, 15 minutes before Mr Clarke sat down, Footsie's gain had been restricted to 13.8 points and at 4,068.4 it was 4.7 below the peak hit a month ago.

With the Budget disappointing and dull and hesitation appearing in New York after a strong opening, the temptation for a little late profit taking proved irresistible.

Despite the late retreat Footsie has climbed 114.6p points in three days.

Today's performance depends heavily on New York. If Wall Street does suffer a sharp tumble then Footsie could be hit. Should the Dow Jones Average resume its advance in late trading London shares may still have difficulty retaining their enthusiasm.

On the premise it is better to travel than arrive many felt shares would end today lower, with Footsie off, perhaps, 20 points.

But longer term prospects are still regarded as good. The Chancellor's actions should not, in themselves, endanger the Christmas rally and in the market last night there was talk of heady Footsie progress.

Throughout the three day surge action has concentrated on the more easily tradable blue chips. The supporting index ended 1.1 up yesterday, making a mere 26.4 gain during the Budget excitement.

Shares which suffered Budget hits included Dixons, on the warranty moves At one time up 6p, the shares ended down 20p at 550.5p. Many brewers were flat ahead of the no change Beer Duty; Bass, off 4p at 810.5p, will have to contend with the higher tax on alcopops. Spirit shares were firm and should go higher today.

British Airways, down 3p to 593.5p, and Airtours, off 14p to 668.5p, were hit by the plan to double airport tax.

Insurances shrugged off the insurance premium tax. But they had whiff of take over excitement to provide encouragement. As the Chancellor spoke a sudden rush of option trading in Commercial Union sent the shares surging 21.5p to 680.5p before settling at 670p. Talk quickly surfaced off a Continental strike with Allianz, the German group, once again in the frame. Said Allianz: "We don't, as a rule, comment on market rumours". GRE ended as the best performing blue chip, up 13.5p to 276.5p and Legal & General rose 8p to 362.5p.

Glaxo Wellcome lost some of its strength, ending 16p up at 1,019p. The ABN Amro Hoare Govett support remained the spur. ML Laboratories, the biotech babe with the rare distinction of actually making money, remained in the sickbay, falling a further 27.5p to 217.5p, lowest for more than a year. The shares were 468.5p last year.

British Gas lost some of its flare on the Shell bid denial, falling 3.5p to 231p. But Shell, 4.5p higher at 1,001p, is the market's bidder for all seasons and attention switched to Lasmo, up 5.5p to 223p. Merrill Lynch joined Panmure Gordon is supporting the oil group which, some feel, is likely to attract a bid - but from a US group.

Financial shares were in demand with HSBC up 34p at 1,299.5p and M&G 47.5p to the good at 1,112.5p. Mercury Asset Management gained 44p to 1,247.5p, highest since the fund manager was freed from the SBC Warburg yoke. It could join Footsie next month.

Storehouse was threadbare, falling 5.5p to 268.5p. Barclays de Zoete Wedd said: "Our fear is that Storehouse will be highly vulnerable in a less favourable retail environment which continues to make us sellers of the shares, despite a low rating relative to its peers".

BTR and LucasVarity attracted investment support. NatWest Securities put a 300p target price on BTR and said: "On almost every valuation the shares are cheap". Lehman Brothers looks for LV to hit 280p and expects the group to adopt a much higher US profile. BTR edged forward 1.5p to 239p and LV 2p to 244.5p.

Specialeyes, the struggling optician, lost 4p to 6.5p following a 6p a share take over bid. The price was 26p in March.

Select Appointments, the recruitment group, fell 4p to 326p. The shares have fallen sharply as the company sought to fix a price for an ADR issue. It settled on $10.50, equal to 312p a share.