Market Report: Investors back takeover favourites against Wall St

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Shares contemptuously ignored Monday's New York blues, managing to end a lacklustre session with a smattering of gains.

Gathering fears that the next US interest rate move will be up rather than down, a prospect which prompted the Dow Jones Average to slump 88.51 points, would, it was predicted, send the stock market tumbling.

True, the FT-SE 100 index suffered an early, knee-jerk reverse but sentiment gradually improved allowing it to close 3 points higher at 3,758.6.

The stock market's resilience stemmed in part from the feeling that domestic rates are, in the near term, more likely to be influenced by German considerations than American. And Germany's economic gloom could encourage the Bundesbank to lower interest charges when it meets next week.

Another round of speculative activity also helped the market to banish the US gloom. As befits a dull day when trading is slow some of the old takeover stories were dusted down and given yet another whirl.

Schroders was firm as stories swirled that Commerzbank of Germany was about to buy the merchant bank with, for good measure, stockbroker Cazenove. It was enough to lift Schroders' voting shares 30p to 1,230p - against a peak of 1,478p last year - and the non-voting units 27p to 990p.

British Gas was again united with British Petroleum by the rumour mill. Gas managed a small flare, up 4.5p to 239p, as BP rose 2.5p to 579.5p.

Yorkshire Electricity added 12p to 869p as talk of a US swoop continued to circulate.

Pearson, in a firm media sector, gained a further 7p to 228p on break- up hopes but Thorn EMI continued to drift from last week's peak, retreating 12p to 1,778p. Reed International improved 20p to 1,184p.

Tales of possible share buybacks and special dividends were another source of excitement. Reuters, thought to be preparing a buy-back, firmed 9.5p to 766.5p; Great Universal Stores 12p to 696p and Associated British Foods 4p to 407p.

Amersham International, the health-care group, responded to reports that Richard Lapthorne, finance director at British Aerospace, was to become non-executive chairman with a 26p advance to 965p. But the departure of finance director Martin Anderson from Harrisons & Crosfield clipped the shares 9p to 148p.

Disposal hopes lifted WH Smith and Signet. Under new chief executive Bill Cockburn Smith is expected to withdraw from a number of peripheral activities including its Our Price music chain and its 50 per cent interest in the Do-it-All, do-it-yourself chain.

And Signet, the old Ratners, has been edging towards the sale of its main jewellery chains for some months and is thought to be on the verge of completing at least one disposal. Smith gained 13p to 477p, a 12-month high, and Signet rose 2p to 31p, best level for more than two years.

Granada, meeting analysts today, drifted 3p to 794p. It will be subjected to close questioning about the integration of Forte and its claim of a pounds 100m profit enhancement. The proposed sales of unwanted Forte hotels and other assets will also come under scrutiny. Granada is due to report interim results in June.

The market's preoccupation with football was illustrated by a 22p jump to a 315p peak by Manchester Utd following the Easter results. But the growing threat of relegation to the second division clipped 0.25p from Millwall to 2.5p. Its hopes of blossoming into a media group are likely to be damaged if the club cannot cling to its first division status.

Analytical comments spurred chosen stocks. Kleinwort Benson added 3.5p to 166p at MFI Furniture and some of the banks were tickled a few coppers higher by broker recommendations.

Lonrho edged ahead 3.5p to 214p on talk Anglo-American, South Africa's biggest mining group, was near lifting its 5.9 per cent interest by buying shares from Dieter Bock, the German who runs the sprawling trading group. Avocet Mining, floated last week at 240p, fell 16p to 227p.

Diploma, the electrical distributor, held at 413p as NatWest Securities cut its profit forecasts from pounds 28.8m to pounds 25.4m and pounds 31.4m to pounds 26.8m.

Alvis, the defence group, added 6p to 163p following an agency cross of 80,000 shares at 161.5p but virtual reality group Superscape VR took another tumble after last week's profit warning, falling 38p to 560p. Pan Andean, awaiting a Bolivian drilling report, recovered 9p to 75p.