Prospects of US interest spark generators into life

National Power and PowerGen again turned on the heat as the rest of the stock market paused for breath after its record-breaking run.

The once-neglected and seemingly boring generators surged to new peaks, with NP up 7p at 524p and PG 12p at 598.5p. NP is just over 100p above its year's low, with PG holding a rise of 141p.

The possibility of US groups taking up some of the capacity the gencos have been ordered to unload has provided the latest excitement.

The duo have encountered problems cutting their operations to comply with the requirements of the industry regulator, Professor Stephen Littlechild. At one time demerging some of their generators, probably at unattractive prices, seemed the only alternative to facing a Monopolies and Mergers Commission probe.

The professor did ease some of the gencos' anxieties by accepting that they had run into difficulties unloading plants but it is the possible intervention of powerful US utilities which has transformed the outlook.

Suddenly the generators are seen as having a golden opportunity to add to their cash piles, which could improve their already bright prospects of continuing to increase their dividend payments.

With their cash-generating powers and dividend cover NP and PG shares are likely to collect much of the cash which could be produced by the current round of electricity takeovers.

Societe Generale Strauss Turnbull is one investment house recommending switches from the regional electricity companies to the gencos.

The recs, however, managed to make modest progress, with takeover hopes still in the air. Besides the expected US interest there were stories as the market closed that BTR would today descend on a rec. BTR was heavily traded, with Salomon Brothers responsible for a 20 million deal. The shares rose 3p to 340p.

The water utilities seemed to at last become aware of the impact of the long, hot summer on the industry and the possibility of having to make compensation payments to deprived customers.

With SG Warburg urging clients to take profits Thames Water sank 16p to 551p and North West Water 11p to 647p. Others lowered included Severn Trent, 19p to 637p, and Anglian, 19p to 546p.

Although the utilities attracted attention the rest of the market was happy to return to the doziness normally associated with summer sunshine. The FT-SE 100 index ended 5.5 points down at 3,530.2 in moderate trading.

Allied Domecq, down 2p at 526p, was busily traded, with more than 9 million shares printed. Most of the activity stemmed from a tax-efficient bed-and-breakfast trade.

Prescriptions were still being written for healthcare shares. Zeneca gained another 9p to 1,139p and Amersham International, reflecting an analysts' visit, jumped 66p to 1.068p. Smith & Nephew, in brisk trading, held its own, unchanged at 196.5p.

The glare of the takeover spotlight switched back to financials, with Perpetual up 45p at 1,670p and Henderson Administration 13p firmer at 1,158p. Gartmore put on 7p to 216p.

Kwik-Fit, the exhausts and tyres group, was also in the takeover frame, adding 10p to 178p. Boots, which takes in the Halfords car accessories chain, denied any interest.

Casket, the struggling cycle maker, edged ahead 0.5p to 9.75p after it reported an approach that could lead to a bid around the current price.

Hambros ignored the setback by its estate agency off-shoot, Hambro Countrywide, firming to 193p. The estate agency fell 1.25p to 27p.

Eurotunnel staged a modest rally after Monday's slide. The units gained 9p to 147p with, it seems, bear closing in Paris responsible.

The growing pile of unwanted packaged holidays clipped 5p to 369p from Airtours and Inspirations dipped 5p to 111p.

Whitbread slipped 4p to 630p. Credit Lyonnais Laing regards the shares a buy; they do not, it says, reflect the earnings from hotels, managed pubs and restaurants, and this month's takeovers of Marriott Hotels and David Lloyd Leisure are "consistent with long-term strategic objectives".

Current year's profits are forecast at pounds 284.7m with pounds 314.2m next year and pounds 347.2m in the following year.

Halma, the environmental engineer, advanced 8.5p to 162.5p on Barclays de Zoete Wedd support but a Robert Fleming buy recommendation for Storehouse failed to impress, leaving the shares 3p down at 301p.

United Biscuits encountered sell advice from Smith New Court. Its shares fell 4p to 291p.