Market report: Overseas investors create turbulence for Rolls- Royce

Rolls-Royce hit more turbulence following its disclosure that overseas investors had increased their shareholdings to 29.2 per cent. The shares, already casualties of sterling's strength, fell 3.5p to 220p, lowest since last summer.

The aero-engine group and British Aerospace have to keep their foreign shareholdings below 29.5 per cent. The companies and various other interested parties are struggling to have the limit abolished.

In the past, when shareholdings have exceeded the ceiling there has been enforced selling of foreign-owned shares. Such action has caused widespread discontent as overseas investors invariably suffered losses.

The restriction on overseas interests has existed since BAe and Rolls were privatised. At one time it was as low as 15 per cent but after intense lobbying was lifted to the present level.

The Government imposed the ceiling to ensure the two groups remain under British control. In addition to restricting overseas shareholdings the Government exerts further influence through a "golden share" at the two groups.

The pound's performance and worries about possible compensation had already pulled Rolls back from its 267.5p peak. The shares could go even lower if the foreign ceiling is breached and overseas investors are once again forced to dump shares. Such a development will again sour investor relations.

BAe, where foreign shareholdings stand at a less threatening 26.52 per cent, rose 2.5p to 1,250p.

The stock market had a surprisingly active session considering New York was closed. Footsie recouped most of its early 21.9-point fall, ending 3.2 off at 4,337.8.

Lloyds TSB kept the banking sector on its toes. After meeting analysts its shares rose 15p to 518.5p.

However, Barclays, figures today, fell 16.5p to 1,199.5p. Reports of a second-half set-back at its BZW securities arm did much of the damage. A rumour Barclays planned to buy a stake in Banque Nationale de Paris, possibly announcing the acquisition today, also unsettled the shares.

Unilever was - again - the best-performing blue chip, up 67p to a 1,604.5p peak. After last week's positive performance by the UK side there was sudden interest in the Netherlands when Morris Tabaksblat, head of the Dutch end of the detergent and food giant, said cash would be handed to shareholders if suitable acquisitions were not found.

Unilever intends to sell its speciality chemical side and hit the takeover trail. Reckitt & Colman, little changed at 766.5p, and Smith & Nephew, off 7.5p at 188.5p, are regarded as the most likely UK targets. Another name in the frame is US group Colgate Palmolive.

British Gas disappeared, leaving its army of Sids with holdings in BG and Centrica. With Merrill Lynch putting a 40p target price on Centrica the shares slumped 10.25p to 65.25p; Seaq putting volume at a remarkable 54.51 million. Last week, in their when-issued form, the shares were in demand on takeover hopes. The other half, BG, rose 2.5p to 174.5p with turnover put at 19.76 million.

Today, grey market dealings are due to start in Hanson and Energy Group in a when- issued form. Official dealings commence on Monday.

Hanson fell 1.75p to 90.5p. Yamaichi says Energy shares are a buy up to 610p.

Expected stockbroker circulars had contrasting impacts. Henderson Crosthwaite is preparing a buy recommendation on Racal Electronics, up 3p to 289p, and Greig Middleton is thought to have adopted a bearish stance on Scotia, the pharmaceutical group, lowering the shares 29.5p to 679.5p.

Railtrack, ahead of this week's investment presentation, gained 10.5p to 393.5p.

Securicor gained 8p to 311.5p on stories BT was once again seeking Whitehall clearance to take full control of the Cellnet mobile telephone business. BT has 60 per cent with Securicor accounting for the rest. The Securicor interest is estimated to be worth up to pounds 1.6bn.

Enterprise Oil spurted 11p to 648.5p as more analysts made positive noises and the group moved towards developing its big Italian oil field.

After Friday's sharp fall, which prompted its dramatic exclusion from Footsie, Williams Holdings ended 1.5p down at 299p after 294.5p. Target Chubb Security fell 3p to 421.5p despite talk of a counter-bid.

Gowrings, the garage and fast food group, jumped 10p to 108.5p. There was talk of investment meetings. Last year Guinness Peat signalled a 90p- a-share offer but backed away when Gowrings resisted.