SHARES in BAT Industries and Rothmans International started to drop shortly before the close of dealings yesterday as the market got wind of a further outbreak of hostilities in the cigarette price war.
Philip Morris, the US giant, said it was taking a defensive step by rescinding a planned price increase on its discount brand cigarettes and abandoning two-tier pricing in that category.
Discount brand cigarettes, regardless of size, will now cost dollars 34.70 per 1,000 in line with prices on discount brands set by RJR Reynolds, owned by RJR Nabisco Holdings.
Morris said: 'Our strategy is to remain competitive and boost sales.'
Previously, Morris had said it would raise the prices in the discount category by dollars 3 to dollars 39.20 for 1,000 king size cigarettes.
BAT closed 10p off at 449p as did Rothmans at 656p.
Blue chips finally ran out of steam after nine successive sessions of share price increases that collectively added 130 points to the FT-SE 100 index.
A fall of 3.7 points to 2,941.3 yesterday, however, would have been much worse but for the late intervention of overseas investors, particularly from America.
The top 100 shares started to slide fast after lunch until Wall Street opened, which almost immediately arrested a prevailing 14-point decline. Gilt-edged stocks were also easier, generally losing around an eighth of a point.
Second-line stocks, though, did manage to advance for the 10th day in a row and establish a sixth all- time high in as many days as the
FT-SE 250 climbed 11 points to 3,349.4.
The FT-SE 250 has now climbed 154 points, or nearly 5 per cent, since it last recorded a fall of 9.6 points on 21 July.
Non-Footsie stocks absorbed the bulk of the day's dealings, with volume topping 483 million against 252 million for blue chips. There were nearly 32,000 trades.
Among the fallers in the top flight of equities, Thorn EMI lost 8p to 956p in the wake of the purchase of Motown, the legendary black music label, by PolyGram.
British Airways fell 6p to 339p despite better-than-expected July traffic figures, which prompted talk of a possible round of profit upgrades by analysts.
The number of passengers carried rose 11.5 per cent and passenger kilometres 11.7 per cent in July compared with the same period last year. Previous months had shown increases in the region of 8 to 9 per cent.
Analysts are looking for profits of up to pounds 340m for this year. The range for next year is very wide, stretching between pounds 325m and pounds 500m.
National Westminster gave up 1p of the previous day's advance on solid interim figures, closing at 509p.
Better-than-forecast half-timers from Midland Bank lifted HSBC's shares 19p to 690p.
Barclays gained another 3p to a 1993 high of 502p ahead of its results today, which many believe will be accompanied by a dividend cut.
Some food manufacturers and retailers, already unsettled by fears of a fresh outbreak of heavy price discounting, were affected by a warning about competitive pressures at Northern Foods' annual meeting.
Northern lost 4.5p to 264.5p and Unilever dipped 9p to 975p. Among the retailers, Tesco eased 5.5p to 208.5p and Sainsbury dropped 4p to 475p.
Boots stood out in the stores sector, otherwise becalmed as hopes of an imminent cut in interest rates continued to subside.
Buy recommendations from SG Warburg and UBS pushed the shares 15p better to 474p. Nearly 5 million were traded.
Golds continued to ease as the bullion price displayed more signs that it would be unable to hold ground above dollars 400 an ounce for much longer. Dealers say the price could end up around dollars 390.
Kinross gave up 50p to 999p, Kloof fell 1p to 812p and Freegold declined by 15p to 822p.
Motor dealers, meanwhile, were buoyed by more reports of bumper sales of L registration vehicles. T Cowie, which is due to report half-year results today, hit a year's high with a 4p rise to 267p. Profits are expected to rise from pounds 12.1m to pounds 14.5m.
Henlys, which Cowie failed to take over last year, edged towards the year's previous high of 191p with a 7p advance to 188p - more than 100p above the value of the all-paper terms offered by Cowie.
Dagenham Motor firmed another 1p to 118p, Appleyard Group put on 2p to 140p, Evans Halshaw gained 3p to 335p, Pendragon added a penny to 261p and Lex Service closed at 400p with a 3p rise.
Geest leapt by 18p to 380p on sweeping changes to its management structure. The fresh produce group has abandoned its management board, three members of which have been enlisted into the main boardroom. Bob Fisher, chief operating officer of the banana group Pacific Fruit, is also joining the board and Jim Maxim, chief executive of Laura Ashley, has become a non-executive.
A further whiff of buying activity in Budgens shares by Rewe, the German company, was detected yesterday. Rewe, one of the biggest food retailers in Europe, is believed to have bought 2 million at 45p each. That would take the Germans' holding in the supermarkets group to around 29 per cent. Budgens and Rewe have been opening discount stores, trading under the name of Penny Market.
As the waters of the Mississippi ebb away from the cities of the American Midwest, attention is turning on how to stop another flood disaster. The US government is sure to sanction some mighty capital projects and a beneficiary could be the Northern Irish group Powerscreen, which has a large US plant hire business. The shares have been strong on the prospects and rose another 2p to 348p.
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