Market Report: Search for silver lining as rate fears depress prices

SHARES slumped again as inflation figures reinforced worries that interest rates will soon be forced higher.

The FT-SE 100 index retreated 41.6 points to 3,079.8, the first time it has closed below 3,100 since early last month. But, perhaps more significantly, it was the seventh consecutive reverse. The index has not endured such a long and depressing run since January last year.

Such a decline inevitably encourages the stock market to look for a silver lining, often raiding its huge fund of market folklore to provide a hint of optimism.

The search did not take long; merely a track back to the last time shares were on the run for seven trading days. The follow- up, it was pointed out, was dramatic, with the index quickly moving impressively to new peaks.

As the market closed, traders were saying the time to buy had arrived. Many shares, they claimed, were oversold because of technical influences and strange antics in the futures market.

And it would seem that heavyweight securities houses agree shares will move ahead. The view that they are set to advance was supported by Hoare Govett, shooting for a 3,500 Footsie at the end of the year, and Societe Generale Strauss Turnbull, looking for 3,350 to 3,500.

Even so, the index has crashed 161.7 points in seven days in, it must be admitted, relatively modest trading. The fall among second- and third-liners has been only a little less severe.

There had been signs that shares would move higher in thin early trading. Then came the inflation figures, which the market thought clearly prompted Monday's interest rate increase, and the market decided base rate would continue to advance, hitting 7 per cent by the year-end.

Government stocks weighed heavily on sentiment, suffering falls of up to pounds 13 8

With most overseas statistics adding to the jitters, there was little time for a largely encouraging round of company figures.

Takeover speculation over Zeneca was submerged in the gloom. At one time the shares were 5p higher at 843p. With the US buyer seemingly content to sit on the sidelines, they relapsed to 835p.

Fisons was hit much harder, tumbling 12p to 123p, a 25p decline since Tuesday's poor results.

Buy-backs among electricals continued. Seeboard picked up 2 million shares at 430p against a closing price of 425p; South Wales mopped up another 350,000 at 817p and 815p. The closing price was 815p.

British Petroleum managed to resist the retreat, up 1p at 417.5p. NatWest Securities deserves the credit. A bullish note was strong enough to throw off the gloom clouds.

The securities house pointed out that since the slump in the summer of 1992, when Robert Horton was ousted as chairman, the shares have outperformed the market by 50 per cent.

Yet they are still at the lower end of their 1986/90 range. NatWest has lifted its 1996 and 1997 earnings-per-share estimates by 10 per cent to 40.4p and 42.7p.

Today BP's exploration chief, John Browne, is due to meet analysts to outline the group's development programme.

GKN failed to hold early gains on Honda's pounds 330m investment in its British operations, falling 6p to 602p.

Blenheim, the exhibitions group, plunged 28p to 215p on its cautious trading statement, and Tadpole Technolgy fell 3p to 398p after confirming it expected to clinch an important US defence contract but would still make a loss for the year.

Celltech, the pharmaceutical group, stuck at 206p. Cazenove placed 12.5 million shares at 200p. Most came from the British & Commonwealth administrator. B&C now has 4.3 per cent.

Forte emerged from the Savoy Hotel battle and its capture of the Meridien hotels chain with a 7p fall to 221p. A rights issue is expected.

Savoy 'A' lost 12p to 913p with the high voting 'B' shares off another 250p at pounds 47.50p.

Vardon, with half-year profits up from pounds 540,000 to pounds 1.1m, was firm at 126p. Analysts expect the year's figure to top pounds 7m. The acquisitive leisure group is expected soon to expand its Continental operations.

Bluebird Toys was a shade weaker at 239p as its Continental shareholders cut their interests from 21.21 to 19.9 per cent.

Waterglade, the property tiddler, lost 0.75p to 2.75p on the realisation that a pounds 6m cash call lurked.

The FT-SE 100 index slumped 41.6 point to 3,079.8 and the supporting FT-SE 250 index 50.7 to 3,628.4. Turnover was 539.6 million shares with 24,214 bargains recorded. Government stocks were lowered by up to pounds 13 8 .

Ayrshire Metal Products is attracting discreet attention. The shares are 123p, their highest since 1989. The group has made a strong recovery from a setback in 1991 and is expected to record a sharp profit advance this year. Although the directors have effective control there are suggestions that stake-building could be under way. A French group is the rumoured party.

Compel, a computer systems group, is braving the bleak stock market conditions but the vendors are paying a heavy price. Societe Generale Strauss Turnbull has placed 6.6 million shares at 125p against earlier hopes of about 150p. The group is a management buyout. After the sale directors will account for 24.29 per cent of the capital. Dealings are expected to start next week.

(Graph omitted)

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