Market Report: Old bugbears return to keep shares in disarray

SHARES are feeling the strain. What under more normal circumstances should have been a confident week ended in disarray with the FT-SE 100 index at one time down 57.7 points.

Although shares struggled from their floor the stock market is clearly troubled about those old bugbears, interest rates and inflation.

As befits a tortured market, rumours of varying credence are flying around.

Talk abounds of huge losses allegedly suffered by a leading US investment house. Certainly there has been determined transatlantic selling that has helped to fuel the loss stories.

The surprise interest rate changes have tended to confuse.

The US increase is seen in some quarters as the first indication that the worldwide trend to lower rates is coming to an end. The British reduction has failed to ease such fears; indeed, there are worrying thoughts that the quarter-of-a-point cut was inspired more by political considerations than economic.

Even so, a week that contained a long-rumoured takeover bid and an interest rate fall should have produced a solid performance.

Instead, the 100 index has collapsed nearly 100 points in often busy trading.

It would appear there has not been much selling by domestic institutions and most of the overseas unloading has come from US houses. After the strong run in recent months some market-makers have, to their huge relief, been able to square their stretched positions.

There is little doubt that some of the more speculative investors have been badly shaken by this week's events.

American investors, of course, hold the key. They have been strong supporters of British shares as they sought homes for cash they were determined to invest in equities because of low US interest rates. But should US rates be forced any higher the so-called wall of money argument could be lost as shares are sold to take advantage of higher US returns.

Nicholas Knight, the arch bull who is with Nomura, remains confident that the 100 index will end the year at 4,000. But he is now much less wedded to the view that it will be around 3,600-3,700 at the end of the first quarter.

The 100 index closed 28.1 down at 3,378.9, with the supporting FT-SE 250 index off 38.9 at 4,030. Turnover topped 1 million - just.

At one time the 100 index was below 3,350, regarded as a crucial support level. It managed to claw its way back when US prices and sales figures turned out to be better than had been suggested. A little new-time buying for the account starting on Monday was another influence.

The market in government stocks was quiet after Thursday's volatile display, with the Bank of England's announcement of a conventional gilts auction having little impact.

Among equities National Power and PowerGen were bright performers following the decision not to refer the two generators to the Monopolies and Mergers Commission. NP gained 14.5p to 475.5p and PG 16p to 541p.

Yorkshire TV bucked the trend as takeover speculation continued. The shares touched 360p, closing 22p higher at 352p. The warrants, at one time 171p, ended 19p up at 167p. The shares have soared 80p this week.

LWT (Holdings) was little changed at 747p as the Kleinwort Benson analyst, Katherine Pelly, described the revised Granada bid as 'just enough to be acceptable'.

Ladbroke, firm at 205p, duly announced its pounds 100m property sale; Forte rose 4p to 257p on the successful Alpha Airports flotation, 1p higher at 173p.

Banks were also in form as Lloyds launched the dividend season with in-line profits and cheerful comments.

Westland, struggling against a GKN offer, shaded 4p to 333p as the helicopter group revealed that the conversion of preference shares and warrants had reduced the GKN stake from 47 per cent to 45 per cent. GKN fell 3p to 557p.

Glaxo Holdings dipped 12p to 639p, seemingly on US selling. Interim results are due on Thursday. The market is looking for pounds 945m, up from pounds 819m. For the year NatWest Securities is on pounds 1.9bn, against pounds 1.7bn previously. It believes the shares are a buy.

Chiroscience, despite the weak market, managed to end its first day with a tiny premium at 151p.

St James Place, where directors and their family trusts sold 16.75 million shares this week, fell 3p to 180p. A New York firm, Clay Finlay, has doubled its interest to 5.61 per cent.

Baldwin, the leisure group, jumped 22p to 130p on results but Armour Trust, a car accessory and confectionery group, fell 3.5p to 58p on its figures. Dawson International recovered to 144p following the warning of US provisions.

Telemetrix fell 19p to 144p as a 37.7 per cent gain by its quoted US offshoot failed to inspire. But next week's New York toy fair lifted Sleepy Kids 5p to 90p.

The account ended with the FT-SE 100 index down 28.1 points at 3,378.9 and the FT-SE 250 index 38.9 at 4,030. Turnover was 1,001.4 million from 48,073 deals. The next account ends on 25 February with settlement on 7 March. Gilts ended higher.

Adam Zetter, a member of the founding family, has cashed in his 660,000 share stake in Zetters, the pools group. He lives in the US and his investment managers advised him to sell his only British shareholding. The shares were picked up by three unit trust groups. The family still has 28 per cent and chairman Paul Zetter accounts for 13.5 per cent. The shares held at 110p.

Headlam, a floor covering and fabric group being revamped by Graham Waldron, has won the support of Credit Lyonnais Laing. Analyst Ian Jermin recommends the shares, forecasting that profits hit pounds 3.6m in the last year, will go to pounds 5.5m this and pounds 7.5m next. Dividends, he says, will improve from the expected 3.2p for last year to 5.5p. The shares were firm at 218p.