Alarm bells at Shell set nerves jangling

Market Report

BEARISH CLOUDS are gathering over Shell ahead of next week's results. The oil giant struck a 13p drop to 478p as rumours of difficult trading in its downstream businesses did the rounds.

The 2.7 per cent fall made the Anglo-Dutch group one of the worst-performing blue chips in another losing day for the market and set alarm bells ringing. Some dealers believe that next Thursday's interim results will paint a bleak picture of the company's oil refining and marketing operations.

The whispers suggest that the two operations are suffering from margin erosion and could undermine the figures just when Shell is undergoing a painful restructuring to slash costs.

Two of the US oil majors, Chevron and Mobil, yesterday fuelled the rumours when they reported sluggish growth in downstream business. The key question for Shell is - will the feared slowdown in the refining business offset the booming crude price? A "yes" answer is set to trigger downgrades and selling.

Shell's UK arch-rival BP Amoco was dragged lower in the market's sell- off and shed 14p to 1184p, but there was a silver lining. Arco, the US group BP wants to buy, beat the Street's predictions and looks an exceedingly good purchase for the UK group.

Halifax was the other big hitter in the spotlight. The mortgage lender cashed in a 25p rise to 711p on rumours that today's interims will contain another cashback. Halifax has already returned pounds 1.5bn of its cash mountain to shareholders, and investors are hoping for another pounds 1bn or so after the expected solid numbers. A more remote hope is that the Yorkshire bank will unveil the long-awaited big takeover.

Sector peer Bank of Scotland firmed 8.5p to 760p on rumours of good figures and a Morgan Stanley upgrade. The US broker also helped Royal Bank of Scotland, up 26p to 1,277p, after dubbing it a "strong buy".

The FTSE 100 had a nervous day, swinging wildly before settling 38.3 lower at 6,169.1 - its sixth consecutive closing loss. The second liners were also hit, with the FTSE 250 falling 47.5 to 5,962.6 and the Small Cap ending 11.4 down at 2,714.6.

Persistent fears of a US interest-rate hike were compounded by whispers of a huge sell programme by an overseas investor. Dealers said that a foreign fund manager, possibly US or Swiss, liquidated its entire portfolio of UK equities in the morning, pushing the blue-chip index to a day's low of 6,092.1.

The breach of the 6,100 barrier triggered some bargain-hunting - reinforced by a better-than-expected start in the Dow - and by the close the FTSE 100 had clawed back some losses. London bulls took heart from an historical quirk: on most of the occasions the index has fallen for six sessions in a row, it has managed to rebound by roughly 8 per cent within two months.

Freeserve monopolised trading. The Internet provider debuted with a 55.5p jump to 205.5p, with over 106 million shares traded despite a sell note by Credit Lyonnais. Parent Dixons, which still has 80 per cent, shed 82p to 1,264p as investors stopped buying its shares as Freeserve proxies. The minnow World Telecom, which has a contract to provide e-mail to Freeserve's users, soared 25p to 99p as investors warmed to its growth potential and low rating.

The all-powerful Net pushed Marks & Spencer 8.25p higher to 381.25p amid talk of heavy investment in its website. There was speculation that M&S is finally to allow customers to use credit cards.

Fellow retailer GUS was the best-performing blue chip, soaring 50.5p to 700.5p. The fears of bad trading at Argos, which had hammered the stock last week are fading and bargain-hunters were out in force. Sector peer Storehouse fell 3p to 124p despite whispers of a strike by entrepreneur Philip Green.

Securicor firmed 7.5p to 544.5p on rehashed rumours of a sale of its Cellnet stake to BT, up 7p to 1,051p ahead of Thursday's figures. United Utilities rose 24.5p to 803.5p on returning talk of a US bid.

The plunge in the Hong Kong index and jitters over a Chinese devaluation depressed a few stocks. Orange, where Hong Kong conglomerate Hutchison Whampoa has a big stake, shed 26.5p to 968.5p. The Hong Kong bank Standard Chartered plunged 23p to 939p.

Cable & Wireless, owner of Hong Kong Telecom, dropped 20p to 745.5p despite finally selling the residential cable business of Cable & Wireless Communications to NTL for 772p per share. Investors' dislike for NTL paper sent CWC 8.5p down to 690.5p. Rival Telewest, up 2.75p to 284.25p should be the next prey.

Caradon starred in the midcap: the building materials group rose 6p to 158.5p amid talk that forthcoming results will benefit from strong trading. Builders' merchant Travis Perkins soared 35p to a record 755p as a large buy order prompted a scramble for the tightly-held stock. Talk of good trading also helped.

Close Brothers rose 29p to 836.5p amid talk that it might add to its Rea Brothers buy. Rank firmed 6.25p to 278.25p on revived speculation of a sale of its cinema chain.

Thomson Travel, down 16.5p to 127p, was sent packing after a profit warning and the departure of its chief executive. Rivals First Choice, down 9.5p to 194.5p, and Airtours, down 22p to 491p, also fell. Dealers believe Airtours could now bid for Thomson.

Shire Pharmaceuticals plunged 53.5p to 511.5p after merging with US rival Roberts as US investors bailed out. Medeva, down 4.5p to 110p, could be Shire's next target.

Water groups were unsettled by today's price review. Hyder leaked 32p to 690.5p, Severn Trent spilled 5.5p to 928.5p and Thames Water lost 15p to 995p.

The tiddler Mansfield Brewery frothed 67.5p higher to 326.5p as sale of a large stake by trustees fuelled talk of a bid, possibly from Wolverhampton & Dudley, down 3.5p to 602.5p.

Photocopier group Danka flashed 25.5p higher to 153p as US buying sparked bid talk. A profit warning chopped Fountain Forestry down 28p to 79.5p. Michael Ashcroft's troubles sent his cleaning group Carlisle 122.5p lower to 592.5p.

SEAQ VOLUME: 1.03bn

SEAQ TRADES: 89,034

GILTS INDEX: 105.73 -0.20

AIM-LISTED stockbroker and fund manager, Durlacher, soared 162p to 2,650p amid growing optimism about two of its Internet companies. Durlacher owns 18 per cent of Direct Network Publishing, a Net business similar to Freeserve. The company recently went private for about pounds 160m, valuing Durlacher's holding at pounds 29m. The broker also has about 15 per cent of the Ofex-traded net auctioneer Icollector, expected soon to unveil a share- boosting deal.

AORTECH International, the maker of artificial heart valves, yesterday said it did not know why its shares pumped up 23p to a year's record 112.5p. However, rumour has it that Elastomedic, a 40 per cent-owned unit of Aortech, is about to reveal that its artificial skin can now be used in medical devices other than heart valves. The breakthrough should open lucrative new markets for Aortech, which is also believed to be close to launching a synthetic heart valve.