Market Report: Racal Electronics sent buzzing by talk of a bid

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RACAL Electronics was the favoured candidate for corporate action as the shares edged ahead 6p to 219p.

They have recovered strongly from the sharp setback suffered when a surprise first-half loss of pounds 388,000 was revealed.

The stock market euphoria, which sent shares surging to new peaks, has of course helped. But a nagging suspicion that Sir Ernest Harrison, Racal's veteran chairman, has another big deal up his sleeve is creating keen interest in the shares.

But the market is split about the shape of Sir Ernest's manoeuvre. The man who hived off Chubb Security, the locks group, and Vodafone, the cellular telephone group, from the Racal rump could, some observers believe, be a seller again.

There is talk that Sir Ernest is prepared to bow to a bid, possibly from the US. It is felt that Racal's involvement in one of the most powerful national lottery consortia adds to its bid appeal.

Another theory is that Racal is on the acquisition trail. The rapidly expanded Cray Electronics is one name in the frame. But a full bid is unlikely; Racal will be content with picking up some of Cray's operations. Certainly a merger of the two groups' data communication businesses would produce a new world force. Cray rose 2p to 186p.

The rest of the market recovered from early distress, with the FT-SE 100 index closing 2.8 points lower at 3,481.4. At one time it was off 21.9 as the Tory tax discomfort and the Tokyo plunge overshadowed Friday's New York peak.

But a poll showing increased consumer confidence, a Confederation of British Industry survey and a firm New York opening helped to spring a late rally.

Keen interest in composite insurance shares was another rallying influence. Union des Assurances de Paris, known to be acquisitive, apparently let it be known that it was keen to expand in Britain.

It is thought to have lined up a deal to buy a smallish British operation, but early this month rumours flew that it was targeting the big Sun Alliance group.

Although Sun has registered surprise at the alleged French interest, the market wonders if it is on the UAP shopping list.

After all, the Transatlantic insurance group, in which UAP has a half share, has a modest but well- publicised stake in Sun. And UAP's pending privatisation could encourage it to flex its takeover muscles.

The interest lifted Sun 14p to 404p. Other insurance shares to score from the cross-Channel interest included Commercial Union, up 13p at 709p, General Accident 10p to 738p and Royal Insurance 12p to 341p.

British Aerospace, up 16p at 444p, and Rolls-Royce, 7.5p to 185p, were spurred by renewed talk that the foreign shareholding ceiling was about to be lifted from 29.5 per cent.

Suggestions that the Taiwan business jets deal will be revived and Honda will increase its stake in BAe's Rover subsidiary also contributed. Rolls was also propelled by clearance for its Trent engine for the Airbus A330.

Airtours, following an institutional meeting, climbed 7p to 575p and Kleinwort Benson support helped electricities.

On the banking pitch Barclays moved ahead 14p to 635p as SG Warburg increased its profit forecast from pounds 1.24bn to pounds 1.68bn. Barclays de Zoete Wedd, the Barclays securities arm, to some extent repaid the compliment, naming Warburg as one of the buys in the financial sector. Gartmore and Invesco were among the other BZW selections.

Brewers were ruffled by the latest shot in the beer price war - London pubs chain JD Wetherspoon, up 7p to 376p, selling beer at 79p a pint. Bass fell 6p to 590p.

British Steel, in busy trading, gained 4p to 132.5p as US steel groups forecast that they would return to profits. RJB Mining gained 4p to 358p. It has taken an eight-year lease on a British Coal colliery at Clipstone, near Mansfield.

Huntingdon International, the pharmaceutical group, fell 28p to 119p following a profits warning. Molynx, the closed-circuit security group, tumbled 10.5p to 25p on news of a 'significant' loss. The proposed share exchange bid by Silvermines, an Irish electronics group, is expected to price Molynx at 25p a share.

Last year the closed-circuit group was the subject of keen stake-building, pushing the shares up to 52p.

Eidos, the video-editing business, had a topsy-turvy session. In a narrow market the shares surged 48p higher to a 328p peak only to run back to 285p.

Goode Durrant, an industrial equipment group, held at 165p as a 25 per cent South African stake was placed at 159p. The packaging group Boxmore rose 10p to 269p on favourable comment.

Premier Land, the old Vizcaya Spanish mining group, edged ahead 0.5p to 8.75p. The FT-SE 100 index closed 2.8 points lower at 3,481.4 and the FT-SE 250 index eased 4.9 to 4,100.9. Turnover was 800.2 million shares from 41,204 bargains,. The account ends on Friday with settlement on 7 February. Government stocks were subdued.

Alvis is attracting attention because of its Singapore connection. It has a 51 per cent interest in Avimo, which has moved ahead powerfully on the Singapore stock market. The Avimo stake helps swell Alvis assets to, some estimate, 140p a share against 42p. Alvis, with a capitalisation below the value of its Avimo stake, is thought to have a deal in the pipeline.

Hobson, the little toiletries group where rumours of a big acquisition have flowed for some months, jumped 2.5p to 20p in a few minutes towards the close. There was talk of a deal involving a former director of the Texas do-it-yourself business. Richard Thompson, Queens Park Rangers chairman and son of David, is chairman of the USM- traded group.

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