But worst fears were not realised. After falling by 36.2 points in early trading, blue chips, as measured by the FT-SE 100 index, ended 29.4 lower at 2,889.9.
However, second-liners conveyed a different message. The FT-SE index mirroring the performance of the next 250 shares climbed seven to 3,125.9, a new closing peak.
Although trading was not heavy, there was evidence of equities already being switched into gilts. Most fund managers were content to take a relaxed view, refusing to be stampeded into hasty action.
There is a feeling that when the full implications of the Chancellor's tax changes have been absorbed shares will come under some institutional pressure, although any decline will be relatively modest. Some fund managers are expected to sell equities to buy gilts, but it is suspected most will stick with their portfolios, although much of their new investment will be directed at the gilts market.
The more restrained outlook for shares has prompted Hoare Govett to pull back its FT-SE 100 forecast from an end-June 3,150 to 3,000 and a year-end 3,200 to 3,150.
Government stocks, down on Budget Day, recovered to post modest gains.
Utilities, the so-called pseudo- gilts, were strong on dividend considerations, with electricity distributors particularly firm.
Preference shares and some of the covertibles were unsettled by the tax changes.
Hopes of a German interest rate cut today, although pushed into the background by the Budget confusion, continued to circulate. Many believe a German reduction will be followed, possibly tomorrow or at least within a week, by a UK fall of half a percentage point.
Some leading oil shares had a strong session, reflecting the tax changes. British Petroleum surged 9.5p to 304.5p, highest for more than a year. Enterprise Oil rose 12p to 504p. Gains were also seen among food retailers, publishers and newsagents, reflecting relief that their operations had not been dragged into the VAT net.
The VAT change on yearlings provoked a modest gallop at British Bloodstock, up 11p at 54p.
Drink shares gave up much of Tuesday's progress. Guinness (year's results today) ended 5p lower at 485p. The group has already warned of pounds 125m exceptional charges relating to restructuring of its Scotch whisky operations and Spanish brewing division. The reorganisation cost could pull profits down to pounds 790m from pounds 956m.
United Biscuits also reports today. The shares rose 2p to 388p, with Hoare increasing its forecast from pounds 205m to pounds 215m.
Property shares, on dividend hopes, made headway, with the Hammerson 'twins' again responding to takeover talk. The ordinary shares rose 6p to 408p and the restricted-voting 'A' shares put on 9p to 375p.
Nurdin & Peacock, the cash and carry group, enjoyed another takeover flurry, up 16p at 218p. SHV, the Dutch investment group, which already has cash and carry interests in the UK, remains the favourite to pounce.
But N&P is not, it seems, sitting back awaiting the SHV strike. It is planning to develop its cash and carry operations, currently confined to servicing retailers, into shopping clubs for consumers.
Pharmaceuticals were weak, with worries about the Clinton administration's healthcare intentions continuing to take their toll. Nikko Securities expects a 15 per cent recovery once the Clinton plans are clarified. Price cuts, it says, would have to be 'well over' 30 per cent to justify this year's share slump.
Campari, the leisurewear group, slumped 61p to 230p on its profits warning; Molynx, a closed-circuit TV group, fell 6p to 19p after forecasting a loss of pounds 500,000. A dividend will not be paid.
Hi-Tec, the sports goods group, fell 9p to 40p on the surprise boardroom resignations. Celestion Industries, the women's clothing group, rose 9p to 129p on profits up from pounds 395,000 to pounds 1.45m. About pounds 2.25m is expected this year.
THE TWO top share indices moved in opposite directions yesterday. The FT-SE 100, covering the leading blue chips, ended 29.4 points down at 2,889.9. But the FT-SE 250 index, reflecting the next 250 shares, rose seven points to 3,125.9, a peak. Turnover was not heavy - 671.7 million shares with 32,410 bargains struck. Government stocks were firm, recovering some of Tuesday's Budget-inspired losses
FROGMORE ESTATES, the property group which has survived predatory manoeuvres, jumped 20p to 391p, highest since 1990. Unlike many of its rivals it has remained profitable during the property slump and, although bid hopes are never far from the surface, it seems the latest buying is in anticipation of interim figures, due on Monday. A comfortable gain over last year's pounds 4.34m is expected.
GUINNESS PEAT Group, Sir Ron Brierley's investment vehicle, yesterday lifted its interest in Brown Shipley to 29.9 per cent and said it planned to bid 35p a share. It will make a final decision next Wednesday once it has studied information received from BS, a financial group. Any GPG offer would counter a 30p-a-share rescue from Kredietbank of Luxembourg which is due to close today.
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