Market Report: Hong Kong doubts slow the advance

FEARS of a Hong Kong slump unsettled the stock market yesterday.

At one time it seemed that this week's dramatic dash-for-growth advance was about to gather pace. But new evidence of the worsening relations between Chris Patten, the colony's governor, and the Chinese authorities sent Hong Kong-related shares spinning lower.

HSBC, the Hongkong and Shanghai Banking Corporation, which now embraces Midland Bank, was at one time down 25p at 475p. The shares closed at 480p.

Cable and Wireless ended 12p lower (after 18p) at 695p and Inchcape 14p at 504p.

The Hong Kong market this week hit a new peak of 6,329.12 points. It lost a little ground yesterday but could, some believe, fall by up to 500 points when trading resumes.

A ragged New York opening and the failure of the eagerly awaited interest rate cut to materialise also contributed to the hesitation.

Even so the FT-SE 100 index managed to close with an 11.6- point gain to 2,669.7. It has, therefore, climbed 105.8 points this week. The FT-SE 250 index, covering the second liners, kept ahead over the four days of the rally although its latest gain was 11.3 to 2,505.9.

Trading remained active with turnover topping the 500 million shares break-even level for the fourth day running.

Although the market was disappointed there was not a further base rate cut it remains convinced it will not be long before one is announced. A 1 percentage point reduction is expected next week. A 6 per cent Christmas base rate is the confident prediction.

As the market has turned bullish, takeover stories have become more persistent. There is also talk of rights issues. Some expect a big cash-raising exercise to appear next week.

Blue Circle Industries rose 5p to 158p on talk of a Continental offer and TSB Group, although it lost most of its early gain and ended just 0.5p higher at 143p, is regarded as a likely bid candidate. Lloyds Bank, up 18p to 452p, is thought to be considering a strike.

The oil group Lasmo is also attracting takeover speculation with some in the industry pondering the possibility of a bid from Enterprise Oil, which has recently increased its resources by raising capital in the US.

But any Enterprise shot would almost certainly be largely a share exchange. Such a move would, from the Enterprise standpoint, have the virtue of diluting the French Elf Aquitaine stake of 25.07 per cent.

Lasmo shares were 315p when it rolled out its audacious and successful pounds 1bn-plus offer for Ultramar. With the shares at 183p (down 8p) the combined group is now worth pounds 1.4bn. Enterprise, up 5p at 444p, is valued at about pounds 2bn.

County NatWest also fuelled activity in the oil sector - by downgrading its forecast for the Shell oil giant. The securities house entered the debate over Shell's prospects by cutting its profit forecast from pounds 2.8bn to pounds 2.57bn and hanging a sell sign on the shares.

But Shell, which has been ruffled by a series of reduced forecasts, still has its fans. Barclays de Zoete Wedd remains on pounds 3.3bn and regards the shares as a buy. Shell fell 6p to 529p.

Lehman Brothers also weighed in. It lowered its Shell expectations and expressed caution over the international integrated groups.

Lloyds Chemists remained in the takeover frame with Kingfisher still the favourite to strike. The shares rose 10p to 223p, a 28p gain this week. Allen Lloyd, chief executive, refused to comment.

Imperial Chemical Industries lost another 20p to 1,047p, ahead of next week's nine-month figures. There are worries the vaunted demerger will not take place and talk of a dividend cut and rights issue is in the air.

Asda, the supermarket group, ended 0.75p down at 41p. The shares have been strong lately. Carr Kitcat & Aitken is positive. It expects interim figures of pounds 37m against pounds 10m and has lifted its year's estimate by pounds 10m to pounds 110m. Next year it is looking for pounds 125m.

Forte put on 7p to 179p on suggestions it is about to sell the non-UK part of its contract catering business to Compass Group, up 7p at 442p.

Tate & Lyle fell 11p to 357p as Smith New Court said sell; the security printing group De La Rue drifted 5p down to 666p on advice from Hoare Govett that shareholdings should be trimmed. Investment briefings tickled Reuters 21p higher to 1,223p.

British Airways, following the Davies & Newman deal, was lowered 3.5p to 305.5p.

The FT-SE 100 share index closed 11.6 points higher at 2,669.7 yesterday. At one time it was up 18.9. The FT 30-share index rose 11.9 points to 1,981.7. Trading remained active, although below the levels of the past three days. Turnover was put at 568.6 million shares, with 28,311 bargains transacted.

LTU, the German travel group that has had talks with Owners Abroad, may have turned its attention to the Airtours holiday group. There is speculation in the holiday industry that LTU, which owns Thomas Cook, is talking about buying a large but minority stake in Airtours as part of a trading pact between the two groups. Airtours rose 13p to 225p.

The long-awaited Arthur Lee share stake sale occured yesterday - and left the steel group's shares down 13p at 81p. Hard- pressed GM Firth in effect sold its 22 per cent interest in Lee to the expected buyer, the Carclo engineering group, at 80p a share. Carclo now has a 29.99 per cent shareholding and looks set to bid. It refused to comment on its plans.