Market Report: French banking merger revives financial stocks

THE PROPOSED pounds 600bn French banking merger reawakened slumbering hopes of a big financial deal.

In the past year or so a multitude of rumours have swirled, linking among others: Abbey National, Barclays, National Westminster, Prudential and Standard Chartered. But the failure of a major deal to materialise took its inevitable toll and financials lost much of their takeover-inspired shine.

But the French connection sent a new wave of merger excitement through the financial community. Abbey led the banking feast: the shares surged 62p to 1,326p. Not far behind was Alliance & Leicester, up 39p to 838.5p and National Westminster Bank, 58p up at 1,413p. Barclays put on 50p to 1,814p and Lloyds TSB 22.5p to 940p.

The attempted French consolidation involves BNP bidding for rivals Societe Generale and Paribas. Almost certainly the deal will be challenged, with Germany's Dresdner among those thought to be interested. There is also the possibility of a British bank barging into the suggested triple alliance.

The banking excitement helped Footsie to end with a modest 3.8-point gain at 6,241.5p. It was at one time down 69.1 points. The initial reaction to the Budget was mixed. As expected consumer shares were firm, but tobacco shares again felt the pinch.

Life, however, continued to brighten on the market undercard. The mid cap index rose 33.3 points to 5,409, its 13th gain on the trot. It is now back at levels last seen in early August. The revival in the often overlooked reaches of the market was underlined by yet another gain by the small cap index, which put on 11.2 points at 2,334. Turnover was again heavy, with Seaq putting share volume at more than 1.1 billion.

Reuters, the information group, was the best-performing Footsie constituent. Investment briefings prompted a round of upgrades, which helped push the shares 65p higher to a 967.5p peak. But results left Pearson 85p off at 1,337p.

The Footsie shakeup was much as expected. Energis, South African Breweries, Misys and Emap joined the exclusive club, and Gallaher, Safeway, Williams and Tomkins were relegated.

SAB's controversial inclusion - it only arrived on the market on Monday - means that two South African shares now have Footsie membership. The other is miner Billiton. At least two other Springbok shares could join the index this year.

Gallaher's fate was sealed by Chancellor Gordon Brown's latest increase in tobacco duty, The shares were weak on Budget day and fell a further 22p to 392.25p. Imperial Tobacco lost 41p to 677.5p and British American Tobacco coughed up 8p to 549.5p.

Among those elevated to the mid cap index were Waste Recycling; Matalan, the retailer up 98p to 551p following figures; and bid target Albright & Wilson, the chemical group. Corporate Services, Scapa and Hillsdown Holdings were among those booted out.

Peel, a property group, scored a 27 per cent gain to 633.5p after indicating that it was thinking of going private.

As tobacco shares wilted, drinks gathered strength. The no-change excise duty lifted Bass 40.5p to 941p, Scottish & Newcastle 16.5p to 722p and Whitbread 4.5p to 937.5p. Diageo, results today, slipped 3p to 721.5p - a confusing set of figures is expected with a dividend cut likely.

Granada added 27.5p to 1,321p as rumours continued to circulate that the leisure group is getting near to attempting its next major takeover deal.

Retailers also received the Brown boost. Debenhams rose 28p to 472.5p, a peak, and Arcadia 15.5p to 219.5p.

Next, the fashion chain, smartened 18p to 747p despite share sales by Tiger Fund Management, the US hedge fund where Baroness Thatcher is an adviser. It cut its stake, largely created last year, to 9.32 per cent by selling 4.24 million shares last week.

Cable & Wireless Communications and Telewest Communications fell back as the Budget day cable merger rumour duly disappeared. CWC fell 15p to 720p and Telewest 5.5p to 270.5p.

Northern Foods hardened 4.5p to 111p. BT Alex.Brown made cautious noises, and also downgraded Hazlewood Foods, up 1p to 116p, and Dairy Crest, off 0.5p at 291.5p.

Waddington, the packaging group, eased 1p to 177.5p as Merrill Lynch said profits this year would emerge at around pounds 31m against the pounds 36m achieved last year.

London Forfaiting, the trade finance group hit by the Asian turmoil, improved a further 9.5p to 74p, with takeover rumours continuing to swirl. The shares have climbed from a bombed-out 42p this month; last year they touched 475p. Trading was again brisk.

Springwood, the leisure group that recently announced it was trading well, rolled out profits a little ahead at pounds 1.4m but added just before market close: "We believe that 1999 will show a marked increase in performance and greatly enhanced prospects". The shares fell 4.5p to 104p. The group is run by Adam Page, the former headed of Midsummer Leisure.

Howard, the house building and property concern, edged forward 2.5p to 71.5p. The shares have moved ahead from 17p since November and gained 26.5p this month. Irish entrepreneurs Frank Gormley and Greg Coughlan took control last year. The group is expected to acquire significant development properties in the Cork and Dublin suburbs and is seeking a Dublin listing.

Waste group Caird rose 27.5p to 262.5p, a 12-month high. A steady seller, it is said, has been accommodated.

Geo Interactive Media, hit by a profits warning on Tuesday, rallied 16p to 65p. Stories circulated that the group was near to a link with Nokia.

DRS Data & Research rose a further 1.75p to 15.5p, and Sports Internet's run continued with a 20.5p gain to 135.5 on its third day of trading.

Advertising group Saatchi & Saatchi firmed 9p to 183.5p, just below its peak. A bid for Cordiant Communications has been rumoured. But Cordiant, it would appear has not been approached. Its shares rose 4.5p to 164.5p after profits of pounds 25.9m against pounds 23m.

SEAQ VOLUME: 1.1 billion

SEAQ TRADES: 85,715

GILTS INDEX: 112.74 +0.24