Market Report: Inflation and rights issue fears wrong-foot investors

SHARES plunged to their lowest since November in one of the most volatile sessions the stock market has experienced.

It had looked as though the US interest rate increase had been comfortably assimilated. Equities and gilts were moving ahead on hopes the Bank of England would respond to the modest US interest rate increase with a cut, perhaps half a percentage point.

But the inflation figures dashed such hopes. And the FT-SE 100 index swung from a 23.1 points gain to a 46.2 loss at 3,155.3; Government stocks sacrificed gains of more than pounds 1 for late morning falls of up to pounds 11 2 . They ended nearly a point down.

Despite the higher US rates the market had convinced itself that the Government would seek to ease next month's round of tax increases by lowering money charges. Now, it feels, any cut would look so political it would not have much credibility. There are even fears the US hike was so modest that more increases will be necessary.

Rights issue fears also lurked. However, the latest crash could force any cash-raising exercise to be postponed.

Allied-Lyons, up 6p at 625p, remains one name in the frame. It is likely to accompany any call with an acquisition that could force it to go ahead, irrespective of the market atmosphere.

Cadbury Schweppes, down 6p at 487p, is another candidate. Although it made a pounds 324m rights issue in September its US ambitions could still leave a thirst for cash. Last year it paid pounds 217m for A&W Brands, a US soft drinks group, and pounds 154m for a 20.2 per cent interest in Dr Pepper/Seven-Up, the third- largest producer. Its Dr Pepper stake stands at 25.9 per cent.

If it has persuaded Dr Pepper to surrender - and it has almost certainly been trying to arrange a deal with the company - a cash call would probably be needed to fund the takeover.

Vodafone flitted on the edge of the speculation. A presentation is thought to be imminent. A new development is one possibility. But there are also rumours of a deal in the air with talk ranging from a desire for more cash to an acquisition. Hit by US selling earlier this week it was another of the small band of shares to ignore the bloodbath, up 7p at 546p.

Among smaller stocks Pentos, the struggling retailer, is thought to be trying to get a rights (about pounds 30m) off the ground. The shares held at 33p.

Drug shares were down in the dumps. The possibility of a rival to Glaxo Holdings' lucrative Zantac ulcer treatment in the US dragged the shares down 40p to 622p.

A positive New York presentation by Astra, the Swedish group producing Losec, currently Zantac's main competitor, was another inhibiting influence. Losec's use in Britain is to be widened. Goldman Sachs, the US house, was said to be an aggressive Glaxo seller.

Wellcome, reporting today, suffered the discomfort of a European Commission investigation into world-wide joint ventures between Wellcome and Warner Lambert, the US group. The shares fell 22p to 601p.

Other weak counters included SmithKline Beecham, off 11p at 390p, and Zeneca 13p at 740p. Amersham International, where a share split is expected, rose 12p to 1,135p.

BAT Industries was actively traded, ending 10p lower at 459p. The shares were at one time down to 440p.

The damage was done by proposals in the US, where BAT's Brown & Williamson offshoot is the third-largest tobacco group, to increase tobacco tax from 25 cents to 125 cents on a packet of 20 cigarettes. It is, however, felt that the increase will be up to 75 cents, a level supported by President Clinton in his health proposals. Rothmans International fell 21p to 386p.

Hanson, despite a seemingly successful US presentation, retreated 5.5p to 276p.

Trafalgar House, the hard-hit construction and leisure group, fell 4p to 101p. It was thought that Smith New Court was involved in a placing of 25 million convertible preference shares at 132p. The prefs fell 4.25p to 131p. It was not clear whether SNC managed to place all the stock.

Oils were mixed ahead of the Opec meeting when once again attempts will be made to shore up the oil price, currently near a five- year low.

British Petroleum was unchanged at 377.5p but Shell retreated 4p to 669p. Lasmo's dismal trading statement left the shares 2p down at 126p.

Water and electricity shares were overtaken by the gloom, but the Scottish generators continued to shine.

With more investment houses drawing attention to their merits, Scottish Hydro-Electric gained 7p to 382p and Scottish Power 8p to 403p.

Selling ahead of figures cut Reckitt & Colman 13.5p to 615.5p, Sun Alliance 9p to 314p and United Newspapers 24p to 636p.

Computer group Cedardata, a recent new issue, rose 3p to 109p in brisk trading on rumours that it was planning an overseas expansion. The shares came to market at 105p and have been up to 118p. Formed in 1983 as a computer bureau service company, it supplies accountancy and financial management software. Profits for the year ending this month have been forecast at pounds 2.65m.

The pounds 100m takeover planned by the little USM-traded toiletries group Hobson is thought to be near completion. A share placing will shortly be under way to raise cash for the deal. The company is said to be buying the Co-operative Wholesale Society's food manufacturing arm. Hobson shares were suspended last month at 27p. They were down to 6.5p last year.

The FT-SE 100 index ended near its lowest of the day, off 46.2 points at 3,155.3, and the FT-SE 250 index fell 27.9 to 3,825.2. Turnover was 714.2 million shares with 39,107 deals. The account ends tomorrow with settlement on 5 April.

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