Market Report: Rolls aero shares fly high as horizon brightens

SHARES of the Rolls-Royce aero- engine group are hovering at their best level for nearly two years as the clouds of anxiety over trading prospects evaporate.

The shares were at one time up 6p to 168p in busy trading, with Henderson Crosthwaite, the stockbroker that descended on British Aerospace when the shares were deep in the doldrums, making confident noises.

United Technologies Corporation, owner of the US Pratt & Whitney aero-engine group, has helped sentiment.

At meetings in London early this week, UTC is said to have spoken of a pick-up in demand for aircraft spares, an essential development for Rolls's prosperity. It is also thought to have increased prices. Since the UTC meetings, Rolls has climbed from 156p.

The success of the group's pounds 307m rights issue has also improved sentiment. The cash call, at 130p a share, took the pressure off overseas shareholders who were breaking through the 29.5 per cent foreign ownership ceiling. As many could not take up their rights, the foreign interest is now nearer 25 per cent.

The gap means that foreign shareholders can buy shares without being in immediate danger of having to sell because they have collectively exceeded the 29.5 per cent restriction.

Rolls - and British Aerospace - are thought to be keen to lift the ceiling. The European Union is also unhappy about the restriction. It is widely suspected that the foreign limit will be increased to 49.5 per cent in the near future.

The aero-engine group has also collected a steady inflow of new orders. Last month it clinched a pounds 140m Ministry of Defence contract. There are also high hopes of deals with US airlines.

The shares were down to 93p a year ago. They were floated at 170p and represent the poorest of the privatisation investments.

The rest of the stock market staged an impressive rally. At one time, the FT-SE 100 index was down 24.8 points, with Unilever's results and second thoughts about the Shell figures doing much of the damage.

Unilever, at one time down 30p, closed 17p lower at 1,086p and Shell lost 14p to 690p.

More suggestions of pensions being hit in this month's Budget also unsettled sentiment and there were fears that the account could end with a hefty sell-off.

But, not for the first time in the account, the Americans came to the rescue. Robust retail sales statistics encouraged a strong New York opening and the enthusiasm soon filtered through. At the close, the index was off 0.6 at 3,099.1.

The 100 index has fallen 72.9 points in what has been an eventful account. Most of the fall - 63.4 - occurred on Friday of last week.

Supermarkets were a little steadier following PDFM's decision to buy 29 million Tesco shares. The fund manager's move is seen as vindicating those who believe the forlorn food retailers are oversold.

Tesco managed a 2.5p gain to 185.5p and Argyll improved 9p to 258p. But J Sainsbury and discounter Kwik Save were easier. Another discounter, Shoprite, put on 11p to 156p.

Pearson, the banking and publishing group, gained 8p to 582p as profit forecasts were reworked following the Royal Doulton demerger.

There were also suggestions that a leading investment house, rumoured to be SG Warburg, was preparing to increase sharply its profit forecast for BSkyB. Pearson has a 17.5 per cent interest in the satellite television service.

Financial shares were subdued, with the modest response to the Gartmore flotation adding to the caution. Despite its strong figures, Warburg, 936p last week, fell a further 15p to 833p. ShareLink, another to report a sharp profits advance, lost 23p to 374p. The shares were 446p last week.

The less enthusiastic approach could indicate that Gartmore, regarded by many market men as overpriced, could suffer the indignity of going to a discount when dealings start.

General Electric Co, due to report interim figures next month, held at 334p. The results are expected to be lower. But Smith New Court believes the group will then make strong progress and the shares, down this week from 348p, are oversold.

Rank Organisation was firm on US buying, up 16p at 835p. Many suspect a deal is being hatched over its Xerox office equipment associate. A Kershaw, the quoted Rank offshoot, rose 20p to 640p.

The latest Lloyd's of London insurance fund made a quiet start. Delian opened at 101p but settled at 99p, down 1p from the sale price.

Avesco, the video group that has linked with IBM this week, rose 5p to 119p. It is believed to be making presentations next week.

Pittencrieff improved 4p to 439p after announcing that it was considering a restructuring of the group, which was seen to mean that it would sell the rest of its highly prized US mobile telephone business.

The account ended with the FT-SE 100 index down 0.6 points at 3,099.1 and the FT-SE 250 index down 13.5 at 3,421.1. Turnover was 639.4 million with 32,710 bargains. The account starts on Monday with settlement on 6 December. Government stocks were strong.

VHE Holdings, a land reclamation contractor, climbed 7p to 126p after analysts toured its Barnsley plant. The group, with maiden figures due in January, has a record order book. It has been estimated that there are 101,000 acres of derelict land in Britain. The shares were placed at 115p in September. In the year to the end of March VHE achieved profits of pounds 2.89m.

A late flurry at Burtonwood Brewery caught the market on the hop. The shares of the family-run Cheshire group jumped 14p to 167p. It has established close links with north-western pub chains, inluding Paramount, where it has more than 20 per cent. The founding families have substantial interests, with Allied- Lyons, with 4.9 per cent, one of the larger outside shareholders.