Market Report: Rate cut hopes bring a three-month high

ONCE again the tantalising possibility of lower interest rates prompted a strong blue-chips advance. The FT-SE 100 index gained 24 points, topping 2,900 for the first time for three months.

With four European countries cutting interest charges, the feeling strengthened that Germany will not be able to resist pressure to reduce its rates for much longer. And a German cut is seen as throwing open the door for a muscle-flexing display by the Chancellor, Kenneth Clarke, still anxious to impose his authority on the economic landscape.

In thin trading the FT-SE jumped to 2,903.4, with dollar-earners strengthening on the back of the US currency. Its peak of 2,957.3 was hit in March.

The broader market was less enthusiastic, although the FT-SE 250 index was up 2.7 to yet another record of 3,218.5.

The talk of lower interest rates helped to reverse the drift of water shares. Electricities, too, drew encouragement from the change in the interest rate climate.

Northern Ireland Electricity partly paid made the predicted impressive debut, closing at 126.5p after touching 129p. Trading was heavy, with Seaq putting volume at 51 million shares. Big investors took the view that the shares were attractive up to 130p.

Cable and Wireless, reporting today, edged forward 6p to 754p. The market expects a gain from pounds 644m to around pounds 800m. BT rose 4p to 432p, still reflecting the BT3 share sale.

Wellcome, however, was one to miss the party. It fell 25p to 705p. It has abandoned a clinical study of Flofan, a heart drug. But Amersham International advanced following clearance from the US Food and Drug Administration for its Metastron cancer drug.

Mirror Group Newspapers rose 3p to 164p, highest since the shares returned to market. They were as low as 52.75p last year.

The strength of MGN shares could tempt the Maxwell administrators to unload their 54 per cent interest. In the past they have indicated they wanted a reasonable premium over the 125p at which the shares were placed when MGN was refloated in May 1991.

The feeling that a deal is in the wind is underlined by the decision of MGN management to meet analysts and hold investor presentations in the past few weeks. The possible move from Holborn to Canary Wharf, which would produce extensive savings, is another rumoured development encouraging speculation. There is a growing suspicion that any sale of the Maxwell interest could be accompanied by a cash-raising operation for MGN.

Fisons was back in favour as takeover rumours returned. A Swiss bid is still regarded as the most likely possibility although the still heady dividend yield, above 6 per cent, remains an attraction. The shares improved 5.5p to 177p.

United Biscuits was another old takeover faithful in a speculative whirl. Cadbury Schweppes remains the favourite to strike. It is widely assumed that talks between the two sides are going on and an announcement will made shortly. UB put on 8p to 408p and Cadbury strengthened 23p to 452p.

Grand Metropolitan jumped 12p to 426p. An investment presentation, expected to dwell on the strength of the group's brands, is due to be held today. Since Philip Morris cut the price of its top-selling and heavily promoted Marlboro cigarettes in April the value of international brands has come in for questioning.

BAT Industries, up 11p to 431p, and Unilever, 7p to 1,045p, improved on the back of the Grand Met initiative.

Thorn EMI advanced 25p to 920p, reflecting the better-than-expected pounds 162m price for its lighting division. Tottenham Hotpsur welcomed the arrival of Osvaldo Ardiles as its new manager with an 8p rise to 107p.

British Steel, after a see-saw session, ended just 0.25p higher at 98.75p following the loss and 1p dividend.

Brake Brothers, a family-run group supplying convenience foods for the catering industry, suffered a rare setback. At one time down to 455p, the shares closed 24p off at 478p. Stories of deepening losses at its London Larder off-shoot, acquired 18 months ago, did the damage.

Among communications stocks WPP edged forward 2p to 89p following a Panmure Gordon investment presentation.

Lonrho, results on Thursday, improved 4.5p to 115.5p. There is talk of more disposals and a boardroom shake-up with the recruitment of non-executive directors.

Intercare edged ahead 3p to 195p. Interim results are due on Thursday. About pounds 1.7m, up from pounds 1.4m, is expected. UBS Securities is looking for a pounds 1m increase to pounds 4.6m for the year.

The new account opened on a confident note with the FT-SE 100 index up 24 points to 2,903.4. The FT-SE 250 index rose a more modest 2.7 to 3,218.5. Volume was only 570.4 million shares with 30,590 bargains. The account ends on 2 July with settlement on 12 July.

Budgens, the supermarket group, edged ahead 3p to 41p. Results are due soon and a gain of pounds 2.8m to pounds 6.8m is expected. It is, however, the intentions of REWE, a German retailing group, that are intriguing. In April REWE paid 55p a share for 26.3 per cent. But the poor performance of Budgens shares since REWE displayed its interest could prompt the Germans to contemplate a full bid.

Aviva Petroleum has discovered a band of US investors, thought to include Shearson Lehman, to pump dollars 11.3m into the group, best known for its Colombian oil interests. The Americans are paying equal to 63p a share against the 69p market price. It is hoped their interest will help meet the cost of the Colombian development. In October Aviva raised pounds 3.4m through a rights issue at 27p.

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