MARKET REPORT: Drug company shares show signs of returning to health

The FT-SE 100 lost 9.2 points to 3,055.8 and the FT-SE 250 index 2.5 to 3,477.1. Turnover was 485.9 million shares with 19,613 deals recorded. Governm ent stocks fell by up to half a point

Drug shares, for so long in the sick bay, are taking on a healthier glow. As the market put on another display of yawning indifference, most of the pharmaceuticals turned in a solid performance, comfortably outscoring most sectors.

The isolation of the Clinton administration is a big factor behind the rehabilitation. The controversial health reforms, which provoked the long drugs decline, are finally being killed off and the hovering threat to profit margins removed.

There are signs the climate is improving elsewhere and with a steady flow of favourable developments some wonder whether the sector is about to come back into fashion.

Glaxo, which has won over-the-counter approval in this country for a weaker version of its its lucrative Zantac treatment, put on 15p to 686p.

SmithKline Beecham, helped by a UBS buy recomendation, gained 8p to 472p; Wellcome 10p to 697p and Zeneca 8p to 878p.

BT, however, was the centre of attraction. The shares rose 5.5p to 393p as speculation intensified that it was planning to mount a powerful challenge in the German telephone market. A link with Viag, a German conglomerate with a small telecommunications business, is likely. The partnership will then take on the soon-to-be privatised Deutsche Telekom, Europe's largest telecom group.

Viag is due to make an announcement today; so is BT. But BT may not concentrate on its German ambitions. There is a sneaking suspicion it is about to offload its shareholding in AT&T, the US giant.

More by accident than design BT has about 2 per cent of the American group, worth $1.7bn. It has made no secret of its intention to sell the US stake and a sale today would tie in with the expectations of some observers. A suggested switch from British Gas, down 5p to 308p, to BT also helped the telephone giant's case.

The BT excitement did not spread to its rivals; Cable and Wireless, tormented by another Hong Kong share market retreat, fell 8.5p to 367.5p.

The rest of the market was again limp, with the FT-SE 100 index falling 9.2 points to 3,055.8 in pitifully thin trading. Interest rate worries again dominated, with the prospect of a US increase towards the end of the month unsettling sentiment.

More departures from Saatchi & Saatchi took their toll. In busy trading the shares plunged 16p to 124p; Grand Metropolitan was another weak spot, falling 26.5p to 378p on unease over its latest US foray, a £1.7bn food takeover.

Engineers were ruffled, with a Barclays de Zoete Wedd downgrading of TI Group doing much of the damage. TI fell 16p to 357p; Glynwed, with a large line going through, fell 4p to 334p.

There was a smattering of trading statements. Hillsdown, the food group, is meeting analysts and felt obliged to put out vague comments on its positiion. It was enough to prompt Hoare Govett to downgrade from £180m to £173m and £200m to £190m. The sharesfell 4p to 179p.

BSkyB's first day without so-called stabilisation support left the shares 2p higher at 248p, with Seaq putting volume at 3.1 million. Morgan Stanley, it is believed. regards the shares a buy up to 290p.

Banks had a difficult session as the Labour Party threatened a big shake-up, curbing profits that are likely to grow by more than 50 per cent in the next reporting season. TSB, expected to report more than £500m against £301m on Thursday, fell 5p to 232p. Barclays lost 13p to 596p and National Westminster 11p to 485p.

Properties remained weak, with James Capel caution and the downbeat survey by Grimley JR Eve, the property consultants, taking their toll. British Land, with the added complicatiion of the Stanhope cliffhanger, fell 10p to 357p.

Reed International remained under pressure from the Smith New Court downgrading, falling a further 14.5p to 779p. The insurance broker Willis Corroon perked up 4p to 147p on NatWest Securities support. Ahead of news of the shake-up SG Warburg was down 10p at 674p. Hambros gained 12p to 252p following its £28m settlement over the longstanding Reksten despute.

Lonrho improved 3.5p to 158p on hopes unbundling moves will be announced with Thursday's results. The market expects profits to advance from £79m TO £110m.

Utilities produced contrasting performances. Electricities gave ground as Trafalgar House increased the pressure on Northern Electric by starting the process to end the ceiling on shareholdings. Northern slipped 4p to 874p. Waters, however, produced a sprinkling of gains.

Benson, an engineering group, jumped 2p to 12.5p on hopes it will produce profits of £2.6m in the year ending May. It is expected to announce a £1m air conditioning equipment order to supply the NatWest Tower, where refurbishment work starts next month.

GBE International continued to attract takeover speculation, up 2p at 35p. Talk persists that Crabtree is interested in part of the group.

Fairchild, the big US avionics group, has acquired the 12.6 per cent of Bullers held by a troubled Turkish bank and is expected to retain about 7.5 per cent of the giftware and television services group. The Fairchild deal should ease market worries about the share overhang. Bullers is likely soon to issue up to 10 million shares to meet an earn-out at its TV offshoot. The shares are 19.5p.

Andrea Cattaneo Della Volta, who was expected to lead a revamping exercise at the SEET textile group, has quit the company. He recently lifted his stake to around 5 per cent and had hoped to use SEET as a vehicle for acquisitions in the textile and related industries. But it seems he did not hit it off with SEET's veteran chairman, Jock Mackenzie who has a substantial interest. SEET held at 53p.