The aero-engine group disclosed yesterday that foreign shareholdings had reached 30.19 per cent - 6.7 million shares over the limit - and efforts were being made to bring them down to the acceptable level.
Rolls shares fell 3.5p to 141p. They were ruffled by the prospect of overseas shares being dumped on the stock market and rumours that the stockbroker Carr Kitcat & Aitken was about to produce a hard-hitting review suggesting the shares should be sold.
Trading was brisk, with rumours flying that UBS Securities had already placed some of the foreign shares.
The Rolls restriction stems from its 1987 flotation at 170p when the Government, anxious to ensure that the company remained under British control, imposed a 15 per cent overseas limit. Foreign buying and pressure from Brussels encouraged the Government to lift the shareholding limit to 29.5 per cent.
There are suggestions that moves are afoot to push the limit higher, with 40 per cent regarded as the next disclosure point.
Rolls has in recent months gone to considerable lengths to let overseas buyers know they ran the risk of entering a danger zone. Last month it issued a statement saying foreign holdings had reached the crucial 29.5 per cent. It seems deals already in the pipeline breached the limit.
The group's registrars are telling shareholders that the 'excess' shares must be transferred before 28 July. Any shares not transferred will be sold 'at the best price reasonably obtainable'.
Rolls has suffered the embarrassment of turning away overseas shareholders on a number of occasions since it returned to the market. On at least one occasion Japanese and US investors were forced to sell at a considerable loss.
The rest of the market had a lacklustre time, weighed down by indications that the economic recovery was running out of steam. The FT- SE 100 index lost 19.2 points to 2,838.5, a two-day fall of more than 50 points. Even the more ebullient second string FT-SE 250 index failed to buck the trend, falling 15.8 to 3,219.
British Aerospace ended 4p higher at 386p after it admitted that merger talks with General Electric Co had been called off. GEC, including a 7.62p dividend payment, fell 10.5p to 321.5p.
Westland, the helicopter group where GKN has a 20.32 per cent stake, climbed 24p to 214p on its pounds 385m award following the collapse of a contract more than a decade ago. The warrants gained 22p to 129p.
Beers were again flat as NatWest Securities highlighted the entry of cost-price Continental lager brands into the take-home market. Whitbread was singled out as a significant casualty and the 'A' shares fell 10p to 489p. Scottish & Newcastle, with results below expectations, managed to confine its fall to 2p to 459p.
Henlys, the vehicle group, rose 2p to 191p as the T Cowie stake of 3.78 million shares (9.99 per cent) was placed with institutions by SG Warburg. Cowie, it seems, sold the shares at 181.5p with Warburg trading them out at about 183p. The shareholding was a legacy of last year's fierce takeover confrontation. Cowie, however, enjoyed the satisfaction of netting a profit of more than pounds 4.5m.
Food retailers felt the squeeze as the market fretted about the overcapacity comments of Archie Norman, chief executive of the Asda supermarket chain.
Asda fell 1.5p to 64p, Argyll 5p to 312p, Kwik Save 13p to 721p, J Sainsbury 12p to 655p and Tesco 5p to 206p.
Sainsbury's yearly shareholders' meeting, due tomorrow, is thought to hold the key to the market's approach towards the retailers. Cautious noises would almost inevitably force a series of downgradings.
After their recent strong run electricities ran into the inevitable profit-taking but waters, held back by regulatory worries, firmed.
HunterPrint continued to pile on the agony. Last week the shares fell 13p as it was disclosed that takeover talks had failed. Then along came a profit warning, pushing the shares down another 5p to 45p.
On the property pitch Greycoat weakened on the restructuring announcement, which, some believe, could include a pounds 120m rights issue. The shares fell 1.25p to 19.5p but the preference shares jumped 17.25p to 51.75p.
The newcomer Business Post reached 133p against a 120p placing.
Chartwell, a loss-making carpets and tiles group, was the day's best performer, reflecting the arrival of Luke Johnson as a director with 4.76 per cent of the capital. He will lead the company's takeover drive. The shares jumped 12p to 37p.
The FT-SE 100 index lost 19.2 points to 2,838.5 and the FT-SE 250 index 15.8 to 3,219. But, with New York closed, turnover was thin, with only 384 million shares traded and 25,014 bargains logged. The account ends on 16 July, with settlement on 26 July.
Oliver Resources is continuing its Far Eastern build-up and will seek a Hong Kong share quote later this year. It is already involved in South Korea and Thailand and is seeking oil and gas interests off mainland China. The group's reverse takeover of Kirkland, a Norwegian oil business, is almost complete and the enlarged and more powerful group will be called Dragon Oil. The shares are 2p.
The stockbroker Shaw & Co is hoping to bring Blackland Oil back to market. If all goes to plan the group will be requoted towards the end of this month following the acquisition of a Hong Kong company that trades in oil. It will change its name to Fortune Oil. The shares were suspended at 8.5p last month ahead of a 'substantial acquisition'. Blackland has made losses for the past four years.