Market Report: Warburg's warning sets scene for another slide

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ANOTHER day, another crash. The FT-SE 100 index recorded its sixth one-day fall of more than 40 points in the past month with a drop of 42.8 to 2,983.5.

Some 9 per cent has been wiped off the value of leading shares since early September. The index is now a pale shadow of the peak 3,520.3 it hit in February.

Traders did harbour early expectations of a better session for equities, given the trade agreement between the US and Japan. A profit warning from SG Warburg, however, followed by higher-than-expected money supply figures, exposed the market's nervous system.

Matters were made worse in afternoon dealings by a weak opening on Wall Street, caused by a surprising rise in the US purchasing managers index. Unsurprising, though, was Nick Knight, analyst at Nomura, reiterating his bearish view of the London market.

A large part of yesterday's falls in equities could again be put down to knee-jerk reaction by market-makers. There were no signs of panic selling - volume trading was low at 521 million shares, spread across a small 23,000 bargains.

The mark-downs also took in most second-line stocks. The FT- SE 250 index lost 45.2 points to 3,449.6. Volume trading outside the top 100 shares was just 300 million.

Financials were rocked by the warning from Warburg, which closed 101p down at 569p - a low for the year and 443p off its high.

Analysts sharply downgraded expectations for Warburg, which has been hit by weak trading volumes in equities. Their profit forecasts have been cut from around pounds 300m to pounds 170m.

However, shares in its Mercury Asset Management subsidiary held up fairly well, losing just 9p to 603p on predictions that its own profits would rise.

Smith New Court, another of the big market-makers, lost 30p to 334p. ShareLink, which offers an execution-only share dealing service and recently plunged on a profit warning, retreated a further 15p to 191p.

Casualties among Warburg's neighbours in the merchant banking sector included Hambros, off 11p to 251p, Schroders, down 43p to pounds 12.35p, and Kleinwort Benson, which fell 11p to 440p.

Dealers' nerves were also jangled by Labour's threat to tax excess profits if it takes office after the next election. Electricity shares suffered more than most.

Double-figure losses among the regional electricity companies were common. They included East Midland, 33p lower at 688p, Northern, which shed 28p to 728p, South West, 24p down to 715p, and Yorkshire, which fell 25.5p to 690.5p.

The companies were also hit by reports that they could face a pounds 1bn tax bill after the planned flotation of the National Grid.

Water utilities fell around 20p after cautious analytical comment about growth potential compared with the electricity companies. Biggest fallers included Yorkshire, down 24p to 500p, Severn Trent, 22p lower at 525p, and Anglian, off 21.5p to 523p.

Food retailers were undermined by Asda and Argyll intensifying the price war. Asda lost 3.25p to 62.25p as it announced a price freeze on 7,000 lines. Argyll, owner of the Safeway supermarket chain, slipped 4p to 270p.

Sainsbury bucked the trend, however, and hardened 1.5p to 402p on its pounds 205m shopping expedition in the US for a 16 per cent stake in Giant Food. Tesco, which recently won a bid fight with Sainsbury for William Low, firmed 0.5p to 236p.

The market's gloom spilled over to builders and properties. Prices in these sectors were dampened by fears of further increases in interest rates to counter inflationary pressures.

George Wimpey slipped 4p to 134p, Taylor Woodrow 1p to 118p and Redrow 5p to 113p, partly a result of going ex-dividend. British Land closed 7p down at 383p, Hammerson lost 7p to 311p and MEPC dipped 11p to 433p.

VSEL dropped 32p to pounds 11.78p on fears that talks with British Aerospace, off 10.5p to 442p, may break down because of differences over the takeover price. VSEL is said to want pounds 13 for its shares, with BAe prepared to pay up to pounds 12.50.

There were few bright spots. Pearson was one of only eight constituents to record gains. The shares rose 17p to 599p on weekend reports of a possible flotation of BSkyB, the satellite television company in which it has a 17.5 per cent stake. Granada, which has a 13.5 per cent interest, firmed 1p to 510p.

Bloomsbury, publisher of the new book on the Princess of Wales, added 2p to 117p.

John Ritblat was left sitting on a loss on his 9.56 per cent investment in Herring Baker Harris, the property agency that saw its shares dive 16p to 28p as it passed the interim dividend and warned about trading. The stake was bought two months ago at an average 40p per share through Conrad Ritblat Sinclair Goldsmith. Inconclusive talks have been held between the two sides.

Kode International shares were back in favour, barely a month after they halved in value to 40p on shock interim losses. The price yesterday rose 7p to 56p on talk of a bidder lurking for the computer services group. Favourite predator is the acquisitive TT Group, down 4p to 355p. TT's most recent takeovers have included Magnetic Materials, AB Electronics, and Dale Electric.

The FT-SE 100 share index dropped 42.8 points to 2,983.5 due to a profit warning from SG Warburg, the merchant bank, and higher- than-expected UK money supply figures. A 45.2 point drop to 3,449.6 was recorded by the FT-SE 250. Gilts lost around pounds 5 8 .

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