Market Report: Shares crash as rate hopes are dashed

A BASE rate cut regarded as too little, too late and growing fears of more hedge fund disasters combined to rout the stock market. At one time Footsie was down 229.7 points to 4,599.2. By the close the retreat was cut back to 130 at 4,698.9.

It was a savage, indiscriminate crash which few shares avoided. With hopes of a 0.5 percentage point interest rate reduction dashed, the market was quick to register its disappointment.

Shares had already fallen before the Monetary Policy Committee statement, upset by the Federal Reserve chief Alan Greenspan's warning on the US economy and Tokyo's overnight plunge. They went in freefall once the rate cut was announced, before clawing back some of the slide in the afternoon despite a predictable poor New York display.

Worries about high-profile hedge funds caused acute anxiety. An array of stories swirled around, suggesting desperate and largely unsuccessful attempts to unravel tortuous positions involving the Japanese yen.

Many hedge funds are big shareholders in British companies. Worries that they are dumping their holdings - or soon will - to ease their financial plight are one of the unnerving influences nagging the market.

The fears weigh heavily on banks. Barclays, which has admitted an exposure to the stricken Long-Term Capital Management hedge fund, was in familiar mode, giving up 55p to 940p, and Royal Bank of Scotland fell 22.5p to 61p. Lloyds TSB eased 22p to 602p.

The mortgage banks, which like their clearer rivals quickly lowered interest rates, fared much better, reflecting their lack of international involvement.

Standard Chartered, astonishingly, resisted the retreat, gaining 29p to 470p. Ignoring the gloom, a splendid old story was resurrected --Lloyds to mount another takeover bid. Since its earlier assault, 12 years ago, was defeated, the market has periodically been gripped by rumours of a new Lloyds attack. Standard's shares have crashed from 1,081p as first the Asian crisis and then the banking meltdown hit them.

Insurers suffered, with Prudential Corporation leading the retreat. Fears about its liability to guaranteed pensions were one influence; another was lower net asset value estimates.

Supporting shares were hammered. The mid cap index plunged 109 points to 4,251.2, lowest since the summer of 1996. The small cap index lost 27.5 to 1,838.5, back at levels seen in 1995. Government stocks fell with equities, ending 1.3 down.

Despite the turmoil, analysts continued to trot out their recommendations and many are still happy to trot out "buy" suggestions.

Credit Lyonnais was attracted by the defensive merits of the generators, putting a 950p target on PowerGen (unchanged at 852p) and 650p on National Power (8.5p higher at 575p).

Safeway, the supermarket chain, gained 11.5p to 294.5p as Goldman Sachs, although cutting profit estimates, said buy.

But CSFB said sell Railtrack, putting forward a 1,300p price against a close of 1,415p, down 33p.

Hotels were ruffled by HSBC caution, with Ladbroke a shade easier at 205p and Millennium & Copthorne off 17p at 296.5p. Granada firmed to 684.5p.

Imperial Chemical Industries attracted a supporter - BT Alex.Brown. The investment house said buy but reduced its profit forecasts to pounds 370m for this year and next. The shares fell 2p to 520p.

Johnson Matthey, the engineering and metals group, retreated 9.5p to 294.5p although Robert Fleming Securities believes the shares are now offering their best value for more than a decade. Analyst Nick Hyslop points out that the shares outperformed the market by 100 per cent in the last recession.

Merrill Lynch also alighted on engineers, backing Cobham, up 16.5p at 724p. Lehman Brothers was cautious on TI, off 8.25p at 344.75p.

Takeover speculation and the pounds 29m sale of its Danish operations lifted Booker, the cash and carry chain, 3.5p (after 10p) to 138.5p but Blacks Leisure softened 20p to 186.5p as SG Securities removed its buy signal.

The breakdown of takeover talks at Abacus Recruitment cut the price 22.5p to 142.5p but Sherwood, the clothing group, stretched to a 6p gain at 42.5p as management announced a 48p a share bid, which non-executive directors describe as too low.

Wiggins, the property group, duly confirmed its airport expansion; it has signed heads of agreements to buy three regional European airports and one in North America. The shares shaded to 10.5p.

Profit warnings continue to appear. Robert H Lowe, the packaging and sportswear group, nearly halved to 3.25p and Weeks, a civil engineering consultancy, slipped 0.5p to 3p.

SEAQ VOLUME: 1.1 billion

SEAQ TRADES: 67,111

GILT INDEX: n/a

THE COST of replacing pint marked beer glasses unsettled the pub chain JD Wetherspoon. The shares fell 13p to 147.5, their lowest for more than two years, on worries that it faces a pounds 250,000 bill to roll out new glasses. The once high-flying group is noted for scoring an own goal during the World Cup with its ban on television sets. The shares were 341.5p early this year.

WITH SHARES crashing, it was not the day for smiles but a company of that name braved the carnage to roll out its plans to come to market. Smiles, a Bristol brewer, wants to raise pounds 3.75m at 75p a share. It has five pubs and is in the process of buying a further eight. The company, which is seeking a presence on the fringe Ofex market, hopes to increase its estate to 20 pubs.

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