Shares unsettled by boost in manufacturing output

MARKET REPORT

Share prices and gilt-edged stocks were unsettled yesterday by sharply higher than expected UK manufacturing statistics that laid to rest hopes of a further interest-rate reduction before next month's Budget.

The 0.6 per cent rise in manufacturing output in August was just too much for the bulls to bear. Shares remained in negative territory for virtually the entire session, although prices, helped by a firmer opening on Wall Street and continued speculation about the next wave of takeover bids, finished the day above their worst levels.

The FT-SE 100 index opened 2.5 points higher, but as the economic data fed through was sporting a 29-point drop prior to Wall Street kicking- in, and eventually closed 17.9 lower at 3,526.5.

A volatile session on the foreign exchanges was an additional thorn in the market's side. The French franc, in particular, came under pressure. Some traders believed that a devaluation of the franc would happen soon, and also suggested that French interest rates may have to rise.

European bond markets generally had a bad day. Gilt-edged prices were sporting losses of a full point at one stage, before closing only an eighth of a point lower.

Fallout from the economic figures, and the currency markets spread right across the equity market in London, curtailing the recent record-breaking run by second line stocks. The FT-SE 250 index lost 12.3 points to 3,979.0.

Despite the sharp mark-down of share prices, there were no signs of panic by investors. Volume trading was relatively quiet, with 634.6m shares changing hands in 28,251 bargains.

Only one-in-five of the top 100 companies managed to record advances, and a further 10 finished all-square. Inevitably, the worst tolls were extracted on the high street retailers, amid concerns over the outlook for interest rates. Kingfisher, owner of Woolworth and B&Q and a constituent of the FT-SE 100 index, fell 4p to 504p. Argos also lost 4p to 496p, and the sector's blue chip, Marks and Spencer, eased 1p to 427.5p.

Similarly, the builders and related stocks were also depressed. Pilkington shed 5p to 203p, Polypipe fell 7p to 153p, Tarmac eased 1.5p to 92.5p, and Travis Perkins closed 6p off at 307p. Y J Lovell, which recently announced it was withdrawing from private housebuilding, slumped to another low with a 3p drop to 12p. The shares traded as high as 170p a year ago.

Yesterday's falls had chartists redrawing graphical forecasts of where the FT-SE 100 index will be at the end of the year. Thoughts earlier this week that the index would soon breach 3,600 and head quickly towards 3,700 were cast to one side, and several broking houses now believe prices have risen high enough.

This is despite the widely- held belief that merger and acquisition activity would remain active, a view underlined by yesterday's pounds 480m agreed bid by Greenalls, down 26.5p to 462p, for Boddington, the rival pub group, which rose 31.5p to 389.5p.

Greenalls' move kindled thoughts about the next targets in the brewing and pub sector. Greene King, which some analysts tip to bow out of brewing but remain involved with pubs, rose 4p to 637p.

Other activity involving bids saw Scottish Power, up 6p to 358p, win its fight for control of Manweb, ahead 10p to pounds 10.05. There is speculation that Scottish may move to buy another regional electricity company before they all disappear off dealing screens.

Oils had a mixed session. The smaller exploration stocks, viewed by some as being ripe for a burst of takeover activity, showed some solid advances, while the majors fell on worries that the crude oil price will ease over the next year.

Among the gainers were Aran, which improved 5.75p to 72.75p on news that it may have found a "White Knight" to top the 61p-a-share bid on the table from Atlantic Richfield.

Fallers among the majors included Enterprise Oil, off 6p to 341p, Lasmo, down 3p to 161p, and British Petroleum, 6p lower at 479p.

United News & Media advanced a further 7p to 545p as Smith New Court followed Panmure Gordon's lead and issued a buy recommendation.

VR Superscape, which has only had a brief life as a listed company, retreated 18p to 391p after announcing a pounds 8.7m tap on shareholders' pockets via a one-for-two rights issue at 330p a share.

Trafalgar House for once had some good news for the market. The sale of its Ritz Hotel in London to the reclusive Barclay twins, who also own the Howard hotel, lifted the price.

TAKING STOCK

rInvestors who two years ago piled into the flotation of Azlan, the computer components distributor, are being handsomely rewarded. The shares, issued at 230p, soared 70p to 420p yesterday on the back of an upbeat trading statement. The company said profits for the half-year to September would exceed pounds 4m, compared with pounds 1.1m in the same period last year.

rHeadache tablets, however, need to be administered to investors in Thomas Jourdan, the consumer goods company. The price fell 4p to 32p after a poor trading statement. The company said brokers' forecasts of pounds 900,000 for the current year were unlikely to be met. Its UGB subsidiary has been hit by low demand, production of its new Sunflame fires has been delayed, and it may have to pay pounds 150,000 in back rent.