Buyers return to Wall Street as rate hike fears recede

European bond and equity markets firmed on weaker-than-expected US employment data for July. US non-farm payrolls rose 193,000 in July, while average hourly earnings fell 0.2 per cent on the month compared with expectations of a modest rise. The figures soothed fears that a rise in American interest rates might be imminent, prompting buyers to return to Wall Street where early exchanges sent the Dow 50 points higher.

After a cautious start to trading, the Footsie quickly gathered momentum and closed at an intraday high of 3770.6, up 36.2 points.

Investors in London spent most of the day waiting to hear if BT, locked in mortal combat with industry regulator Oftel over pricing and competition, would take its case to Monopolies and Mergers Commission. Against the market trend, the shares were under selling pressure throughout the session and closed 4p lower at 364.5p in the absence of any developments.

Also weak was Rank, ahead of a strategic review due to be unveiled with interim results next week. The shares dipped 8p to 474p.

Another trading update, another profits warning from Anglo-French papers group Arjo Wiggins Appleton. Poor first-quarter sales figures prompted analysts to trim their full-year profit forecasts for the former Footsie stock by about pounds 30m to pounds 120m. The shares, which closed at 171p, have been in the shredder since Arjo warned in May of a poor first half and dealers shaved a further 3p off them yesterday. New chief executive Daniel Mellin is in the middle of a strategic review that could involve the break-up of the group a la Hanson or British Gas. Selling Appleton, the US papers business which generates the bulk of profits and cash, is one option.

Arjo's news also knocked shares in packaging group Rexam, 3p lower at 362p.

Sears slipped 1.5p to 98p after agreeing to sell its Hush Puppies retail business to Stylo and its Hush Puppies wholesale businesses to Wolverine World Wide for a total of pounds 23m. Sears expects to make a pounds 500,000 profit on the disposals.

Bid rumours continued to swirl around confectionery and soft drinks giant Cadbury Schweppes. The shares topped the list of best performing blue chips, adding 20p to 539p, as vague talk persisted that Unilever might be interested.

Banks, in the middle of their reporting season, were in demand again. Royal Bank of Scotland closed 16p ahead at 497p, while HSBC added 25p to 1116p. NatWest picked up 10p to 655p. HSBC James Capel set a 700p price target for the stock in the next three to six months. The house also reiterated its buy stance, saying the price does not take into account the potential for the bank's recent acquisitions - Greenwich, Gleacher and Gartmore - and the benefits of recent cost-cutting measures which are beginning to flow through.

Mobile phones group Vodafone continued to recover on the back of this week's presentation to investors. The shares dialled up a 7p gain of 240.5p.

Societe Generale Strauss Turnbull turned positive on the building materials sector. In a report flagging the industry's interim results next month, the broker said the underperformance seen in the summer months has brought ratings down to attractive levels. The sector now stands at a 10 per cent discount to the market, yet much of the profit decline in the current year has been weather related while underlying conditions in the UK continue to improve steadily.

Pilkington, up 5p to 188p, Caradon 3p better at 205p and RMC, 5p weaker at 1035p, are all rated buys, while Tarmac, a ha'penny higher at 100.5p, and Wolseley, 9p poorer at 420p, attract sell recommendations.

BPB Industries is also judged a sell, but the shares rose 9p to 340p after the company's annual meeting was told profits and margins improved in the first quarter.

Soc Gen is more cautious about building and construction in general and AMEC in particular. Norwegian shipping group Kvaerner still retains a 25.9 per cent stake following last year's abortive bid and the broker thinks short-term price movements will be governed as much by further speculative interest as fundamentals. The shares fell 3p to 92p.

There was excitement in the world of accountancy software as Sage made a 425p a share offer for Pegasus. Sage sagged 3p to 425p, Pegasus was steady at 413p.

Shares in Caspian made a storming return, closing 10p above their 18.5p suspension price, after its pounds 16m offer for Leeds United football club went unconditional. Caspian claims 8.5 per cent of Leeds.