Market Report: Indices stagger upwards on yield chasing

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The Independent Online
YIELD CHASING was the name of the game as the record-breaking account ended with a roller-coaster display.

A smattering of profit-taking appeared to destroy hopes of further progress but a late rally, helped by new time buying, pushed the FT-SE 100 index to yet another peak, a rather hesitant 1-point gain to 3,010.1. At one time the index was down 16.6 points and seemed set to close below 3,000, breached on Wednesday.

Once again trading was brisk, with some investment houses seeking out redundant and retired stockbrokers to help staff back offices in danger of being swamped with paperwork. Turnover almost reached 4 billion shares this week.

Although there are fears that the next account could produce steady selling, pushing the FT-SE 100 index down to around 2,900, the stock market remains confident and there are hopes that the private investor, once an endangered species, will continue to return to the market.

Hence renewed interest in dividend yields. On Monday BT goes ex-dividend, a 9.45p payment. Shareholders, including those who subscribed in BT3, collect their dividend cheques next month. The two Scottish power companies are also ex-dividend on Monday.

PowerGen, which paid its final dividend early in the form of a second interim, is due to announce its next payment next month.

It was, however, the water shares, highlighted by UBS Securities research, that bathed in the yield spotlight. The water index was up 33.9 points, by far the best sector performance.

With dividend yields stretching to 5.6 per cent, the sector's attraction against, for example, building society returns is obvious. Electricities, which also offer 5 per cent-plus yields, were less exuberant but they were strong on Thursday.

BT edged forward 2p to 432.5p with the partly paid 1.25p better at 187.75p. PowerGen, meeting analysts on Friday, fell 4.5p to 387.5p.

Among waters Anglian spurted 15p to 510p and Thames 13p to 520p.

Over the account the FT-SE 100 index has climbed more than 80 points. The FT-SE 250 index has soared almost 150 points, hitting new highs on each day of the account.

The market expects European interest rates, following the near destruction of the exchange rate mechanism, to fall sharply, with some strategists looking for a 1-point UK cut within a month. Despite some less encouraging Whitehall statistics this week the case that the economic recovery is under way still appears strong.

British Gas flared again as the conviction grew that Tuesday's Monopolies and Mergers Commission report will not be too harmful. The shares improved 4p to 332.5p, a 24.5p gain this week.

It is generally believed that the suggestion that Gas should be broken up will not be pursued.

However, if the market has misjudged the MMC, which has spent a year completing its report, Gas shares will be in for a rough ride. An unfavourable report could also affect other utilities.

Rolls-Royce, where foreign shareholders are up to the 29.5 per cent ceiling, jumped 7p to 162p in busy trading. There were suggestions that overseas investors were again buying although, until the restriction is removed, they will be forced to sell. In the past heavy losses have been suffered by such forced sales.

It is thought representations have been made to abolish, or lift, the ceiling, which was originally fixed at 15 per cent. Rolls interim results are due next month.

In a weak drugs sector, Medeva's tale of woe continued. Legal proceedings have started against the group in the US, sending the shares tumbling 11.5p to 95.5p in brisk trading. There was even talk of a sale at 78p. Zeneca bucked the trend, up 8p at 663p.

Tomkins gave ground on worries about its acquisition of Ranks Hovis McDougall, highlighted this week by a sell recommendation from Yamaichi, the Japanese securities house. The shares fell 4p to 226p.

Legal & General, down 10p at 479p, was ruffled by the Cheltenham & Gloucester Building Society's decision to stop selling endowment mortgages when its five-year link with L&G ends in November. Prudential Corporation fell 5p to 327.5p following disappointing US figures.

Tadpole Technology's fall from grace continued. The shares lost 14p to 240p on persistent, small selling. They touched 364p in the euphoria that followed their flotation at 65p.

News International held at 249p. Hutchison Whampoa, the Hong Kong group, sold a big block of ADRs in the parent News Corporation. The deal was done by Goldman Sachs.

Standard Chartered continued to reflect satisfaction with its figures, 18p better at 967p. HSBC was another strong banker, up 9p at 756p.

Credit Lyonnais Laing helped properties higher with a bullish review. Land Securities rose 14p to 674p. Hoare Govett sell advice pushed Enterprise Oil down 10p at 429p.

Wardle Storeys, a plastics group, jumped 24p to 444p following Kleinwort Benson support.

Aran Energy rose 4.5p to 33.5p on talk of a Celtic Sea strike.

Armour Trust, the car accessories and sweets group, jumped 3.5p to 48p on speculation that Grand Central Investment Holdings, a Far Eastern group, had lifted its stake following a sale by Lothian Regional Council. GCIH, which has confectionery interests, has been an aggressive buyer and has about 24 per cent of the capital. LRC had 5.6 per cent and has cut to below 3 per cent.

Watch Caverdale, the old Rock Darham, which is busy building a car dealership network. There is talk of another acquisition soon and one stockbroker, thought to be Carr Kitcat & Aitken, is preparing a buy recommendation. The company is being developed by the Swedish banker Arild Neldrum. It has the backing of the Aspinall, Goldsmith and Packer families. The shares are 9.75p.

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