Market Report: Discount houses strong on lower interest rate hopes

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DEALERS enjoyed another busy day, split into distinct halves of buying in the morning and profit-taking in the afternoon. Some 690 million shares were traded, taking volume over the past two days to 1.35 billion.

Fears the previous day that the pounds 3.25bn gilt auction might not be well covered were proved unfounded, with the issue comfortably oversubscribed.

Long-dated gilts climbed by nearly a full point on the auction result and finished with gains of around 5/8 .

Talk about lower European interest rates was again widespread. And hopes that the Bundesbank would make cuts today in the leading Lombard and discount rates were bolstered by a cut in its repo rate from 7.15 to 6.95 per cent.

Discount houses were one of the main beneficiaries of the interest rate talk. Union Discount gained 9p to a year's high of 169p, Cater Allen added 13p to 517p, King & Shaxson firmed 2p to 136p and Gerrard & National put on 10p to 444p.

Shares in merchant banks were lively, aided by the increased market activity during the normally depressed summer recess. Kleinwort Benson rose 6p to 420p, SG Warburg jumped 17p to 736p and Schroders closed at pounds 10.35p, up 25p.

Elsewhere in equities there were plenty of corporate features to keep the pot boiling throughout the proceedings. The FT-SE 100 share index, following on from the previous day's 35-point surge, looked poised to break through 2,900 with a run to 2,895.7 by lunchtime.

However, an initial 20-point drop on Wall Street on concern about President Bill Clinton's budget reduction package and afternoon profit-taking pulled prices back.

At the close the index was left with just a rise of 4.8 points to 2,884.2, largely thanks to afternoon advances by Glaxo and Wellcome on their tie-up with Warner-Lambert.

Glaxo rose 10p to 558p and Wellcome increased 31p to 696p. The movements represented a combined 3.57 Footsie points.

Another 1.89-plus points stemmed from a 7p rise to 305.5p in British Gas. Volume was 11 million.

Other prime Footsie gainers included Burmah Castrol, ahead 15p to 731p. Burmah is increasing its holding in Castrol India from 40 to 51 per cent.

British Telecommunications' 27 per cent first-quarter profits improvement was overshadowed by a cautious statement on prospects by Iain Vallance, chairman, particularly on next month's introduction of a harder pricing formula.

The ordinary eased 1.5p to 417.5p and the partly-paid closed unchanged at 174p after being a couple of pence higher in early dealings. Volume trading was high, with 14 million ordinary and 30 million partly-paid turned over.

In contrast Zeneca, demerged from ICI earlier this year and with its maiden interim figures today, fell 4p to 622p. SG Warburg is looking for pounds 325m against a comparable pounds 261m. ICI, which will also report, lost 9p to 650p.

BAT Industries was subjected to some profit-taking, losing 4p to 455.5p. Interim profits were at the top of analysts' expectations, but the 8 per cent increase in the dividend exceeded many forecasts.

Cazenove, busy at the start of the week with large trades in Burton and Great Portland Estates, placed 14 million shares in Forte, which many believe was unusually badly handled by the blue-blood broker.

There was talk that Cazenove encountered difficulties because of confusing rumours of an overhang of 5 million shares.

Some traders thought NatWest Securities was trying to push through a large sell order, while others thought it was Hoare Govett.

NatWest, however, only reiterated its view that Forte, down 5p to 214p, was still too expensive following a briefing on Tuesday.

Forte has recently been subjected to a round of profit downgradings and the consensus is that it will make pounds 99m in the current year against pounds 72m last time.

Cazenove managed to place the shares, thought to form part of a holding of a single investor, with one institution at around 207p.

Stakis, another hotel group, dipped 1p to 55p after raising pounds 9.4m through a placing of 18 million shares at 53.25p with established shareholders.

Ex-Lands, up 1.5p to 32.5p, is also in the market for funds, wanting to raise pounds 15m via a pounds 15m issue of convertible loan stock. It plans initially to spend nearly pounds 6m on a portfolio of properties in south-west London.

A pounds 6.7m, two-for-one rights at 21p was also made by Arlen. The shares firmed 1p to 35p.

Andrew Sykes dropped 17p to 100p after shareholders at the annual meeting were told that trading was flat in the first quarter.

Courtaulds, up 4p to 535p, and Allied Colloids, up 2p to 239p, announced a joint venture to develop the Oasis fibre, a super-absorbent fibre. Allied will provide expertise on super-absorbency and Courtaulds the input on fibres, which one analyst said marked a trend to diversify risk and cost of research and development projects.

Rhino improved by 2.5p to 33.5p on prospects for its merchandising licence on Jurassic Park products. A positive note from Strauss Turnbull lifted Amersham 9p to 813p.

The FT-SE 100 share index came close to breaching 2,900 yesterday before a bout of profit-taking eroded most of the day's gains. Having touched 2,895.7 at lunchtime, the index closed 4.8 points ahead at 2,844.2. The account ends tomorrow and settlement is on 9 August.

Directors of Taunton Cider yesterday disposed of 1.64 million shares at 197p, having been freed from the handcuffs that prevented them selling until a year after the company was floated. Some venture capital investors also sold 2.1 million. James Capel handled the transactions. Shares in Taunton, floated at 140p last July, initially dipped to 200p before recovering to close 1p easier at 204p.

Shares in Radius swiftly plunged from 56p to 44p as the computer software group announced a dive from profits of pounds 525,000 to losses of pounds 466,000 in the half-year to 31 May. There was also a cash outflow of pounds 258,000. A confident prediction by Michael Roberts, chairman, that things would improve in the second half had little impact on sentiment. Interim dividend has been halved to 0.45p.