Market Report: Sniff of lower rates triggers renewed surge

SHARES were again excited by the tantalising scent of lower interest rates yesterday. The FT- SE 100 index shot ahead 39.3 points to 2,868.

Expectations that Germany will lower its rates at next week's Bundesbank meeting spurred European stock markets, encouraging hopes that the Chancellor will, after all, be able to accompany his Budget with a gentle half-a-point reduction.

Imperial Chemical Industries also contributed to London's burst of strength. Its relaxed decision to postpone its pounds 1.3bn cash call until June helped to calm an atmosphere that had become tense on the possibility of imminent ICI cash demands. The upbeat Confederation of British Industry review was another bullish influence.

By delaying the call ICI's chairman, Sir Denys Henderson, sent the bears running for cover as UK and US institutions warmed to the reshaping exercise. ICI, in active trading, climbed a further 55.5p to 1,208p, an advance of 126p since Sir Denys announced his plans.

Even some of the favourite rights issue candidates managed to shrug off the shackles of uncertainty. Glaxo Holdings, for example, rose 22p to 667p as the market concentrated on a meeting with the US Food and Drug Administration. Under discussion was Glaxo's Serevent asthma drug and hopes ran high that the FDA would give it at least limited approval.

With US investors less bearish on the pharmaceutical sector others moved ahead, with SmithKline Beecham 12p higher at 453p and Wellcome 15p at 886p.

The healthcare group Smith & Nephew, a long-running takeover favourite, also attracted attention as many new-time buyers decided it was the share for the next account, starting on Monday. In busy trading the shares rose 5.5p to 156p. Year's profits are due in the next account and pounds 143m (against pounds 132.4m) is expected.

It was not only Smith & Nephew that attracted new-time attention. United Biscuits was another. It jumped 12p to 379p as some wondered whether its attempt to sell its confectionery side, Terry's, would provoke a bid for the UB group.

UB is talking to Philip Morris, the aggressive and cash-rich US group. But it appears that Cadbury Schweppes is making determined endeavours to pursuade UB to accept its offer for Terry's. Cadbury shares rose 13p to 469p.

Although trading was below the more exuberant levels seen this year it was an active session. In what has been an indifferent account the FT-SE 100 index climbed 25 points, with the FT- SE 250 index up 29.8.

Tate & Lyle continued to attract profit upgradings, gaining 7.5p to 437p. James Capel has lifted its forecasts from pounds 228m to pounds 238m and from pounds 257m to pounds 263m. Switching out of the Dutch operation into the UK business lifted Unilever 17p to 1,225p.

British Steel advanced 3.5p to 80.5p on expectations of European production cuts. Pearson, the banking and publishing group, dropped 10p to 381p with a line of 1.5 million sold at 383p.

Oils were firm with Enterprise up 16p to 476p following US investment meetings. Lasmo gained 8p to 182p and Monument Oil & Gas 0.25p to 41.75p. The two groups are involved in the Liverpool Bay field and there is talk that the Government intends to impose a two-year delay on 'sour' gas being pumped ashore from the field.

Second-line water shares bubbled as Severn Trent bought East Worcester Water. Brockhampton rose 11p to 234p and Cheam Group 'A' 8p to 227p.

P&O, the property and shipping group, edged forward 3p to 549p as NatWest Securities joined those who feel that the dividend will be held and said buy. Tarmac was unchanged at 106p on NatWest sell advice. 'A rights issue is inevitable at some point,' the securities house said. Another builder, Taylor Woodrow, was little changed at 88p as Greig Middleton forecast a loss of pounds 71m for last year and said it would represent the low point of TW's fortunes. GM expects a profit of pounds 11m this year and pounds 33m next.

Avesco, a maker of television equipment, continued its advance on the appointment of SG Warburg as advisers, gaining 12.5p to 63p. Aberdeen Petroleum jumped 2.5p to 18p on expectations of a hostile Pittencrieff strike and Brooke Tool Engineering slipped 0.5p to 9p as Roger Shute, ex-BM Group, said he had cut his stake to below 3 per cent. He appears to have retreated with a modest profit.

Shares ended the account in fine form with the FT-SE 100 index up 39.3 points at 2,868. The FT-SE 250 index was more subdued, up 6.6 to 3,036.1. The FT-SE 350 index, embracing the two, closed 2.3 below its peak. Volume was 671.3 million shares with 35,280 bargains. Government stocks edged ahead.

The Castle Mill International revamp is gathering pace. Two directors quit the giftware and clothing group yesterday and Brian Rousell, the entrepreneur, lifted his stake from 14.39 per cent to 23.03 per cent. An injection is likely with CMI, some think, likely to move into property. CMI shares recovered from early uncertainty, closing unchanged at 10.5p.

Guardian Group, the old Associated Energy Services, moved ahead 2.5p to 10.5p. It is thought to be trading well following the reverse takeover of Guardian Foundations (Southern), which underpins buildings. Guardian, which also has mobile telephone interests, has expressed its intention of paying a dividend as soon as possible. Its last payment was in 1984.

Shares of the family-run Manchester brewer Joseph Holt hit a new high, surging 175p to 2,775p. But the shares are a notoriously narrow market. Barclays de Zoete Wedd and Cazenove are the market makers. Holt has achieved a reputation for its tight control of overheads and the low price of its beer. Profits have climbed from pounds 3.42m to pounds 6.36m in five years.

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