Market Report: Shares romp ahead as rate hopes rise

THE POSSIBILITY of yet lower interest rates mesmerised the stock market yesterday.

Shares romped ahead over a wide front and the FT-SE 100 index closed 54.8 points higher at 2,617, its best for nearly a month. The hope that Germany will cut interest rates today, giving the UK the opportunity to move base rates down to 7 per cent within a few weeks, created the excitement.

The mood was helped by a growing feeling that the Government will survive today's debate on the coal industry, following Monday's retreat, a firmer display by sterling and New York opening on the plus side.

Trading was often active, with turnover topping 600 million shares, although gains, at least in some instances, were exaggerated by stock shortages, with market makers often caught on the hop. A suspected programme trade, probably by Goldman Sachs, could have inflated volume.

Hard-hit shares such as Imperial Chemical Industries and Barclays, the banking group, staged recoveries. ICI climbed from its year's low to 1,027p, up 24p. Barclays was 12p stronger at 313p, despite a credit downgrading by IBCA, which cut its long-term rating from AA+ to AA.

Waters were strong as some investment houses suggested switching out of electricities.

It is felt that the Government's climbdown on power shares will have a neutral impact. But the uncertainty that has been generated leaves a question mark over the industry and could prompt the shares to underperform.

Severn Trent gained 9p to 426p, Thames 11p to 469p and Wessex 12p to 548p.

Encouraged by the interest rate euphoria, the electricity distributors ignored the retarding influence of the switch suggestions and mostly joined the fun. The generators, however, fell. National Power lost 4p to 250p and PowerGen 4p to 257p. The two Scottish generators were also lowered.

Rolls-Royce fell 3.5p to 126p with one securities house, thought to be Barclays de Zoete Wedd, reducing next year's profit forecast from pounds 145m to pounds 95m. Panmure Gordon also lowered its expectations. It lowered from pounds 130m to pounds 115m, leaving this year's forecast unchanged at pounds 72m.

The renewed interest stemmed from the conviction that demand for aero engines and spares is set to fall as the recession deepens.

IMI, the building products and engineering group, collected yet another profit downgrading. Smith New Court has moved lower than its rivals, signalling profits of pounds 65.8m (cutting from pounds 70m) and pounds 71m ( pounds 83m). The shares fell 9p to 213p.

Lloyds Chemists endured a two-way pull. A rumour that Kingfisher was about to pounce circulated. But the excitement was tempered by the belief that a negative piece of research was about to appear. The shares were left 5p higher at 195p. Kingfisher, one of the blue chips suffering from a stock overhang, edged ahead 3p to 503p.

Generally, retailers were encouraged by interest rate hopes. Other interest-sensitive sectors were strong.

Internationals were also prominent. Allied-Lyons, Grand Metropolitan, Rothmans International and Unilever were among the best performers.

Pearson, the banking and publishing group, improved 21p to 364p, helped by SG Warburg. Glaxo Holdings was restricted by US selling but SmithKline Beecham advanced following figures.

Defence stocks were unsettled as Smith drew attention to expected UK and US defence cuts. General Electric slipped 3p to 249p; Ferranti International shaded 0.75p to 5.25p.

Wolseley, heating and plumbing equipment distributor, scored a 64p gain to 408p following better-than-expected year's figures. Confident noises from the Gerrard & National discount houses pushed the shares 26p higher to 306p. Cater Allen rose 18p to 328p in sympathy.

Once again the indices indicated that much of the trading was directed at leading blue chips. But there was keen activity among some of the smaller groups.

Fitch RS, the design business, opened at 17p, closing at 20p. The shares were suspended at 41p in July. Aviva Petroleum, after touching 32p, ended just 0.5p higher at 30.5p. Its rights issue, at 27p, was 60.65 per cent subscribed.

Essex Furniture improved 2p to 57p on the 46 per cent profits expansion and Regalian Properties put on 1.75p to 7.75p.

Hoskins Brewery held at 46p as rebel shareholder Richard Cattermole and supporters lifted their interest to 5.65 per cent.

Significance of the development of the North Sea Gryphon Field has been lost on Aran Energy. Clyde Petroleum has climbed from 32.5p to 41p since the company, with a 35 per cent interest, linked with an Austrian group to get Gryphon under way. But the smaller Aran, with a 14 per cent interest, has shown little movement. Yesterday it rose 1p to 16p as Hoare Govett said buy.

Shares of Dunton, the brickmaking and property group, have climbed from a token 1p to 4.5p since it reported much-reduced losses on Friday. The after-tax loss was pounds 497,000, down from pounds 4.35m. Last year the group was the subject of a rescue reverse takeover by a property group run by the Travers family. It last reported profits - of pounds 1.1m - in 1990.