Market Report: US rate increase stirs investors from sidelines

SHARES surged to their highest level for nearly five months as the stock market decided that, despite the US interest rate increase, there is unlikely to be any need for a British advance before November.

The FT-SE 100 index jumped 43 points to 3,190.3 adding, Datastream calculated, pounds 9.4bn to the market's value.

Trading was often brisk with turnover the best for weeks as institutional investors were encouraged to stir themselves from the sidelines and peck at a few of their favourite stocks.

The US half-point increase came as a relief. With New York encouraged by what appeared to be a decisive move, shares opened on a confident note. Then came the inflation figures which were read as removing any immediate pressure for an early increase in domestic interest rates.

The underlying inflation rate was at its lowest since 1967 and sentiment was helped by another fall in unemployment.

Today the Bundesbank is due to ponder its rates. There is a widespread belief it will respond to the US move by lowering German rates, which would further strengthen the market's resurgence and, some believe, put Footsie on course for 3,300.

Money rates were not the only influence spurring shares higher. The hoary old takeover rumours continued to circulate.

Unilever, although below its best, shrugged off disbelief it could be contemplating a bid for Heinz, the US food giant, gaining 4p to 1,130p; Glaxo put on 10p to 637p on talk of a big US strike.

Cash-rich General Electric remained in the frame on talk of a BTR bid or, perhaps, a bid for British Aerospace. With its towering cash mountain the group is looking increasingly vulnerable. Hopes of Saudia Abrabian contracts were also in the air. The shares gained 8p to 300p with BAe 10p higher at 508p. BTR rose 8p to 384p.

But, as if to underline that takeover froth could easily be blown away, United Biscuits closed 1p lower at 344p and Wellcome could manage no more than an unchanged 719p close.

Cadbury Schweppes, regarded as the prime candidate for a UB strike, gained 7p to 475p, largely on a Barclays de Zoete Wedd buy recommendation.

Analysts John Parker and Julian Hardwick believe Cadbury has shrugged off competition from the likes of Cotts, the Canadian group, and will produce pounds 200m ( pounds 166m) at the interim stage next month and reach pounds 490m ( pounds 416m) for the year.

Albert Fisher, the food group, was said to be doing the City rounds and, if true, the first port of call, BZW, was not impressed by the message. It was said that BZW cut this year's forecast from pounds 40.5m to pounds 37.5m and next from pounds 52m to pounds 47m.

Lex Service retreated 9p to 392p as the disappointment over August car sales continued to weigh heavily; Nightfreight advanced 12p to 118p on the recommendation that bigger lorries should be allowed on the roads.

Utilities had a firm session. Electricities were helped by higher dividend estimates, talk of bids and the possibility of a National Grid flotation.

Owners Abroad dipped 3p to 104p on further consideration of its reshaping and planned name change to First Choice Holidays; Guinness improved 8p to 469p in another round of busy trading. The market remains convinced that a share placing - Warren Buffett or LVMH - is near.

Oils were weak despite the deteriorating situation in Nigeria. Lasmo gained 3p to 157p as it was disclosed that an Algerian strike could lift its reserves by up to 10 per cent.

Beers, on lower tax hopes and the warm weather, continued to ferment with Scottish & Newcastle 8p higher at 544p and Whitbread 18p stronger at 575p.

The cricket/TV deal was seen as good for BSkyB, helping shareholder Pearson rise 21p to 645p; Granada, another with BSkyB interests, gained 5p to 514p.

Harrington Kilbride, the publisher, tumbled 8p to 34p on its restated profits and dividend cut. Plantsbrook, the undertaker, was firm at 139p as Service Corporation International, the US group buying Great Southern, raised its stake to 3.23 per cent.

HSBC recovered 17p to 734p as stockbroker James Capel, part of the HSBC group, said the shares were a buy following the figures.

Sleepy Kids, the animation business, held at 59p as Shaw & Co forecast profits reaching pounds 500,000 this year and pounds 1m next.

Middlesex, the metals group, was busily traded with some chunky lines going through. The shares held at 4p.

Seafield Resources, the oil and gas explorer, flared 9p to 63p following a North Sea strike on a block in which it has a 10 per cent interest. The company came to market three years ago at 60p. It has a clutch of powerful shareholders with National Power accounting for 24.34 per cent. British Borneo Petroleum, with an interest in the same field, rose 2p to 221p.

A cash bid for Andrews Sykes, the industrial services group, is on the way. Jacques Murray, who won the battle for boardroom control, is to offer 50p a share through European Fire Protection which triggered a bid obligation by lifting its stake to 37.87 per cent. Andrews was 47p ahead of the signalled offer. EFP is content to settle for 50 per cent of the capital.