Market Report: Kuwaiti arms deal prospect ignites GKN

GKN, the engineer, enjoyed a storming run as the stock market was closing yesterday.

After drifting hesitantly, the shares suddenly came to life as the possibility of a huge defence contract, possibly worth pounds 750m, edged tantalisingly nearer.

They closed 15p higher at 419p, with confident predictions that they could move further ahead today.

The signing of a 'memorandum of understanding' between the UK and Kuwait governments ignited the interest. GKN said it could not comment because 'detailed negotiations continue'. But the GKN contract is expected to cover a 10-year supply of armoured vehicles, the Piranha and Warrior.

It has been suggested in some quarters that the order is a consolation prize after the UK's failure to win an even bigger tank contract when Vickers' Challenger 2 was outmanoeuvred by the Americans. The memorandum involves the establishment of a programme office to manage contracts for UK industry on Kuwait's behalf.

But as GKN gathered pace the rest of the market came to a grinding halt. After four record sessions the FT-SE 100 index ended 27.9 points down at 2,764.1.

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Activity in the futures market, with talk of US selling, dominated blue chips. But second- liners were less influenced by derivative activity and the FT-SE 250 index posted a 6.3 gain to 2,650.8.

It was an ideal day to crank up the rumour machine and Lucas Industries and Tarmac attracted takeover attention.

Lucas, a favoured target for the BTR conglomerate, was helped along by support from Carr Kitcat & Aitken. It expects profits of only pounds 35m this year but believes the dividend will be held at 7p a share. For the following year Carr suggests pounds 100m. The shares responded with a 10p gain to 134p.

Tarmac, too, was said to be in BTR's sights. In heavy trading, with Cazenove, BTR's broker, said to be buying, the shares gained 6p to 96p.

There is a growing conviction that BTR is stirring itself for takeover action. Its shares were unchanged at 517.5p after Tuesday's advance, inspired by profit upgradings.

Sears, said to have received an offer for its Selfridges department store, jumped 4p to 96p in active trading. Granada Group climbed 25p to 334p on its results.

United Biscuits edged forward 2p to 352p following an investment meeting with County NatWest, and the Booker food group rose 26p to 370p after James Capel comment and an analysts' visit. Argyll Group, meeting Scottish investors later this month, put on 3p at 381p. Unilever was ruffled, down 5p to 1,074p, as a line of 1 million hovered.

The deteriorating relationship between Hong Kong and China continued to influence shares connected with the colony. HSBC, the banking group, tumbled another 22p to 480p and Cable and Wireless 16p to 643p.

Next, the retailer, improved 4p to 138p as SG Warburg reiterated its buy recommendation. T&N, the motor components group, advanced 9p to 147p, also reflecting Warburg enthusiasm.

Spring Ram, the bathroom and kitchen group, lost 3.5p to 100.5p. County NatWest placed 7.7 million shares at 98p on behalf of an institution.

Bass, down 15p to 585p, had an unsettling influence on brewers, with profits below expectations and the unexpected property write-down. East Anglian brewer Greene King edged forward 2p to 470p after Whitbread Investment Company disclosed that it purchased 250,000 shares, lifting its interest to 6.5 per cent. Euro Disney fell below its 707p flotation price, down 27p to 698p.

Burmah Castrol firmed 2p to 667p on talk of a Cazenove presentation and Calor Group eased 4p to 220p as SHV, the Dutch group, lifted its stake to 48.15 per cent by buying 1.5 million shares.

P&O, the property and shipping group, sank 16p to 475p. The possibility of a dividend cut resurfaced. Yamaichi, the Japanese house, said 'sell' and suggested a dividend reduction would indicate a price of 360p. Profits, it forecast, will fall from pounds 217.4m to pounds 195m.

Slough Estates improved 5p to 142p on the pounds 62.5m sale of its Sutton Business Park at Reading. The deal could, it is thought, offer encouragement to other property shares. Standard Life Assurance is the buyer of the 55- acre park.

Tiphook, with UBS Phillips & Drew taking over as broker to the container group and US ADR interest reaching 11.14 per cent, gained 30p to 305p. Rolls- Royce said its overseas shareholding was 28.3 per cent. The shares rose 2p to 104p.

The record run ended yesterday with the FT-SE 100 index down 27.9 points at 2,764.1. But the FT-SE 250 index, covering the main shares outside the 100 index, rose 6.3 to 2,650.8. Turnover remained good - at 624.2 million shares from 28,749 bargains.

Government stocks were mixed

Jeans maker Pepe jumped 4p to 11p on hopes that Joe Bloggs, an unquoted clothes group, planned a reverse takeover. But Rea Brothers, Pepe's financial adviser, said there were talks with bankers and the group was looking at other options 'to sort out its difficulties' but 'Joe Bloggs isn't one of them'. Noval, a Hong Kong group, paid 85p for a 29.6 per cent stake in March.

Any lingering hopes the Etam fashion group may have nursed that Oceana, the South African- run group, had given up its hostile intentions were shattered yesterday when Oceana said it had picked up 1.3 million shares, lifting its stake to 36.37 per cent. The South Africans, whose bid was defeated last year, are free to resume hostilities. Etam shares held at 232p.