Takeover hopes boost British Gas in busy trading

MARKET REPORT

The suspicion that British Gas is destined for takeover action returned to the stock market, sending the shares of the unpopular gas utility 3.5p higher to 261p.

The Gas advance was achieved in a twitchy, uncertain session, often dominated by wild rumours. Like other power shares Gas is drawing strength from the recent wintry weather, which has helped lift the shares from the 226.5p low hit last month.

But the feeling is growing in certain quarters that the shares are not relying entirely on any improvement in trading prospects. And Gas's relationship with its regulator remains sufficiently strained to dampen market sentiment.

The high turnover in Gas shares is being cited to support the corporate action theory. As a major group it features daily in the high volume tables. But the turnover has, even by Gas standards, been tantalisingly high. For example, Seaq put the turnover at 77 million on the last trading day of last year.

Yesterday only Forte - in the grip of takeover action - was more busily traded than Gas. The Forte turnover was 36.8 million with Gas achieving 19.3 million.

British Petroleum is regarded as the most likely to put Gas out of its misery. Gas has a market capitalisation of pounds 11.4bn and BP is one of the few giants which could afford such an adventure.

BP slipped 3.5p to 546p, still within a whisker of its 12 month high. Shell, another seen as a possible candidate, also fell 3.5p - to 874p.

The rest of the market was intrigued and weakened by rumours of more difficulties for the Tories and a disturbing buzz that Eurotunnel was about to reach the end of the line.

In late trading Eurotunnel's shares fell 6p to 77p, a new low, as rumours swirled it could soon be overwhelmed by its financial problems and the shares would be suspended.

It seems a conference called for today in Calais, which is likely to have an upbeat trading message, provoked the sudden bout of jitters, a reaction which illustrates how fretful the market has become over Eurotunnel which is working on a refinancing.

On Monday the shares fell 5p on worries Japanese banks would decide not to support the restructuring.

Whitbread fell 17p to 681p on the revised Granada bid for Forte. Granada lost 6p to 637p and Forte rose 7p to 351p. The feeling that a Granada victory would lead to a swift takeover of the Savoy Hotel group pushed its "A" shares 23p higher to 953p.

Rolls-Royce, which is buying a French crane maker for pounds 1.7m, held at 195p as Malaysian Airlines confirmed its was buying Boeing 777 aircraft with Rolls engines. British Aerospace, the day's best performing blue chip, rose 22p to 824p on growing optimism about the Orange flotation with the underwriting syndicate said to be in place. BT, with Societe Generale Strauss Turnbull support, rose 9.5p to 357p. Better-than-expected car sales from Vickers sent the shares purring 15p higher to 272p.

Cobham, the engineer, gained 12.5p to 507.5p following Monday's meeting with fund managers and an analysts' conference.

Redland's surprise profit warning lowered the shares another 9p to 372p with housebuilder Barratt Developments losing 4p to 257p.

House of Fraser, the stores chain, produced the day's profit warning, falling 3p to 163p.

Airtours remained firm on tales of a Virgin link, climbing 16p to 406p.

Hillsdown gained 5p to 176p - a two day gain of 9p - on persistent rumours that it has some major meat disposals planned.

Henlys, the vehicles group, motored ahead 43.5p to 540.5p. And Monument Oil & Gas gained 3.5p to 61.75p as busy trading reflected the higher crude price and a nagging suspicion that a bid could materialise.

Bank of Scotland, up 5.5p to 300p, responded to the success of its Australian banking venture; HSBC slipped to 1,007.5p on suggestions it was about to bid for insurance broker Steel Burrill Jones, up 3p at 46p. Queens Moat Houses, the struggling hotel group, had another busy session, gaining 0.75p to 13.75p on persistent speculative buying.

British Dredging, where a little-known Panamanian company is stake-building, put on 11p to 124p on talk of corporate activity.

Ladbroke fell 4p to 150p as Bass bid speculation faded but there is now vague talk that Scottish & Newcastle could be interested.

Rexam, the packaging group, fell 12p to 380p as vague bid speculation faded.

TAKING STOCK

r SkyePharma, the reborn Black & Edgington, made an active debut on AIM. After the financial reshaping the group is now a modest drugs operation, which Ian Gowrie-Smith, the deal maker who helped create the Medeva medical group, hopes to transform into a major international business . The shares, suspended for the complicated revamp, returned at 8.5p against a 9p suspension, with the nil-paid rights at 5p and the warrants at 7p.

r IES, due to arrive on AIM next month, continues to make remarkable headway on Ofex, the fringe market run by the market maker JP Jenkins, with the shares of the security systems group gaining 40p to a 450p peak. IES made profits of pounds 616,000 last year, up from pounds 271,000.