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Threat of rise in interest rates adds to Footsie's woe

A stock market already weighed down by Budget and option worries had to contend with the daunting prospect of interest rates being forced higher next month. Footsie was at one time 54.9 points lower; it closed off 25.2 at 4,657.0.

The modest rally was due to the appearance of a few bargain hunters and a slightly firmer New York display than had seemed likely at one time.

A retail sales surge in May, before the Halifax and Norwich Union loot became available, was the signal for higher interest rate fears to grip the market.

It is widely assumed that Labour's pre-election pledge to hold income tax will be honoured in Gordon Brown's first Budget. But with the retail bonanza, his tax standstill, runs the argument, will leave the allegedly independent Bank of England with no alternative but lift interest rates.

With institutions worrying about Mr Brown's treatment of their tax relief and unease over tomorrow's futures and options expiry the market remained an extremely hesitant place with few investors, big and small, prepared to chance their arm.

Blue chips were not the only shares in retreat. Second liners were marked lower and the FTSE SmallCap index suffered a 9.3 points fall to 2,270.5.

BSkyB was the major blue-chip casualty. The uncertainty about the departure of chief executive Sam Chisholm was compounded by indications the Independent Television Commission wanted BSkyB to unload its stake in British Digital Broadcasting. Bailing out of BDB would, whatever gloss BSkyB might put on it, be a major setback for the satellite broadcaster and its shares tumbled 45p to 521.5p, roughly in line with Lehman Brothers' fair value estimate.

BG, after early unease, ended 6.5p higher at 219p as the Monopolies & Mergers Commission report was regarded as a "score draw" by the market. Indeed ABN Amro Hoare Govett, BG's stockbroker, lifted its dividend forecast to 5.8p (against 5p) and changed its stance to undervalued.

BTR illustrated the presence of bargain hunters. What has for long been the market's friendless conglomerate enjoyed the rare distinction of topping the blue-chip leader board with a 9.5p jump to 203.5p. Earlier this month, with seemingly not a buyer in sight, BTR bumped along at 184.5p with one still-to-be-explained trade going through at 160p.

Lasmo was another in form. The oil group rose 8p to 269p, helped it was thought by a New York investment presentation.

Siebe, the engineer, put on a further 12.5p to 1,001p, reflecting the squeeze following its APV takeover; APV rose 1.75p to 110.5p.

Allied Domecq, the pubs and spirits group which could be a casualty of the Grand Metropolitan-Guinness-LVMH imbroglio, was at one time bumping along at a 407.5p low. In busy trading it ended little changed at 414.5p.

Burn Stewart, the Scotch whisky group thought to be in the sights of unquoted William Grant & Sons, shaded 1p to 62.5p.

Smith & Nephew, the healthcare group, slipped 0.5p to 174.5p. It disputes alleged claims by Novartis that the Swiss giant has won the battle to produce the best skin graft treatment. S&N is currently launching its version in the UK.

IES, the security system group, was the day's profit-warning victim. The shares plunged 43 per cent to 68.5p. It said it would be in the red in its first half-year and year's profits could fall short of expectations.

The group produces hidden surveillance cameras for cash dispensers. The shares arrived at 292p last summer.

The heady advance of computer group Micro Focus came to an abrupt halt as Marcelo Gumucio, chief executive, sold 74,500 shares at 1,853p, netting pounds 900,000.

He apparently needs the cash to pay his expenses for moving from Minneapolis to California. The shares fell 45p to 1,837.5p; they have climbed from 643p in August.

Bid target Albert Fisher, the food group, rose 3.5p to 46.75p as Mercury Asset Management lifted its stake to 5.3 per cent and estate agent John D Wood, which is in bid talks, gained 15p to 146p as rumours an offer was about to be announced went the rounds.

Body Shop International was again pestered by worries about its French operation which depressed last year's results. The shares fell 6.5p to 162.5p.

Rage Software continued to respond to its forecast of a return to profits and share buying by managing director Paul Finnegan with a 0.75p gain to 5.25p.

Taking Stock

rShares of chemical group BTP should be due for a run, believes Martin Evans at stockbroker Sutherlands. He expects profits of pounds 54m this year with pounds 61.5m next. The shares, little changed at 288p, should "regain former investor confidence" on the back of fine chemicals growth and favourable conditions for adhesives and safety equipment.

rBritish Taxpayers Association, traded on Ofex, jumped 10p to 21p. Through a chain of associates it provides a self assessment tax service. Earlier this year it attempted to raise pounds 1m at 28p a share but had to settle for a pounds 400,000 injection.

rDisplay IT, an Ofex share, held at 550p. BT man Bill Murphy has joined the board. There is talk of a major development next week.