Market Report: Merger with Amoco ignites BP shares

BRITISH PETROLEUM flared 27p as institutional investors chased the shares ahead of the huge merger with US group Amoco.

The creation of the oil behemoth means many index funds are short of BP shares. They have little alternative but chase them to increase their weighting to the necessary level.

So, although the oil group is expected to roll out poor figures today, its shares were in demand, closing with an 18p gain at 895p with Seaq putting volume at 22.4 million.

BP offers third-quarter figures. They are likely to have been savaged by weak crude prices, lower refining margins and squeezed chemical margins. The outcome could be around pounds 400m, down from pounds 542m.

Shell, the other leading European integrated oil group, checks in with third-quarter figures on Thursday. It, too, will have a depressing tale to tell. Unlike BP, there is no index fund scramble for the shares and the price was unchanged at 362.75p although turnover was a heavy 47.5 million.

The stock market enjoyed another exhilarating run with Footsie climbing 87.1 points (after 126) to 5,525.5. The expected Guy Fawkes interest rate fireworks and more strength in New York and the Far East fuelled the surge. Only four weeks ago Footsie was seemingly on its knees, hitting 4,599.2. It is now at its highest for 10 weeks.

The move above the psychologically important 5,500 mark was accompanied by some determined buying of supporting shares with the mid-cap index up 76.4 to 4,887.8 and the small-cap 22.7 higher at 2,035.

Great Universal Stores topped the blue-chip leader board, gaining 51p to 693p on its planned finance sell-off, and better-than-expected results from Associated British Foods pushed the shares 29p higher at 589p.

Tate & Lyle soared 70p to 420p. ABF's results made a modest contribution towards sweetening the sour atmosphere surrounding the shares, which have had a torrid time on worries about trading prospects.

Besides any ABF influence, talk of corporate action was in the air with Monsanto named as the possible predator. Lehman Brothers was also said to be positive.

T&L shares hit a low in last month as the market fretted about rumours of poor trading. Turnover in the shares was modest. Earlier this year they were 580p, falling last month to 288p.

Williams, the fire protection and security group, was another in the bid frame. At one time the shares were up 36.5p as stories of a bid from Tyco International, the US group, circulated. A price of 600p was mentioned. Talks, it appears, did take place. They have been terminated. Whether at any time a full merger was discussed was not clear. The shares closed 12.5p firmer at 385p.

The phones were ringing again for telecom shares with BT 33p higher at 805p and Securicor, on its pounds 223.4m deal with Deutsche Post, 23p to 465p. Vodafone rose 39p to 839p. Besides continuing talk of a deal with Airtouch, a US mobile phone group, it was supported by the planned flotation of its 55 per cent owned Greek off-shoot, Panafon Hellenic. About 15 per cent of its shares are to be sold although Vodafone is retaining its interest. Computer shares were firm with ComputaCentre up 25p to 477.5p.

Insurances survived cautious comments from HSBC, which fretted about the worsening economic environment and the impact of flood damage. The investment house reduced its stance on GRE and Royal & Sun Alliance to hold and repeated its view that CGU was no more than a weak hold. GRE rose 15.5p to 305p; Royal 17.5p to 564.5 and CGU 43p to 989.5p.

Supermarkets suffered more recommendation cuts with Asda off 3.5p to 157.5p and Tesco 7.25p to 161.25p.

Rank, the struggling leisure group, again reflected break up and bid hopes. The shares improved 13.25p to 262p as it was reported that the first break up marauder had appeared in the shape of former director John Garrett, offering pounds 2bn.

Arriva, the transport group, advanced 8.5p to 375.5p; it looks as though it could collect more than pounds 500m for its leasing side.

The much stronger market display in recent weeks was reflected in fund managers shares. Perpetual added 215p to 2,965p and M&G 72.5p to 1,560p.

Scotswood Industries jumped 9.5p to 21.5p after confirming it was set to buy a vehicle-tracking company, and London Forfaiting, the finance group specialising in finance for overseas trade, surged 30.5p to 125.5p after chief executive Stathis Papoutes disclosed he had been speaking to potential US investors.

Caldwell Investments hardened 7.5p to 36.5p after adapting its Ninaclip to lock trays on a baby buggy or pram. Desire Petroleum, the Falkland Islands oil and gas play, fell 3.5p to 50p on rumours that Lasmo was trying its sell its Falklands acreage even before the current drilling programme was complete.

SEAQ VOLUME: 832.3m

SEAQ TRADES: 68.12

GILT INDEX: 110.46 -0.07