Market Report: Second liners close the gap on blue chips

AS blue chips struggled to hit another peak the rest of the stock market was in much more heady form, with second and third liners striding confidently to record levels.

Footsie's gain was a modest 1.3 points to 5,829.8; the mid caps index jumped 30 to 5,316.8 and the small caps index rose 12.4 to 2,523.4p.

The market's under card has this year convincingly moved to narrow the huge gap which the long blue-chip bull run had opened up.

Many fund managers, trooping back into equities after building their cash hoards, have decided blue chips have become too expensive and the real bargains lurk in the rest of the market.

The latest Merrill Lynch survey among fund managers recorded a sharp increase, from 15 per cent to 38 per cent, in the number of managers preferring mid cap stocks.

Merrill Lynch's Trevor Greetham believes "medium-sized companies tend to be more sensitive to the domestic economy than their larger Footsie cousins".

The quarterly Footsie revision resulted in Compass, the contract caterer, gaining membership with Misys, the computer group, just missing out. Relegated Dixons firmed 1.5p to 491.5p.

Seven companies joined the supporting mid cap index, including consultant WS Atkins and chemical group Yule Catto. Among the casualties were Powerscreen and Body Shop.

As is so often the case, investors had already discounted the latest changes and even some of the adjustments which will be made in the next few months.

Takeovers should mean at least two mid cap changes before June, prompting the shares topping the reserve list to reach new peaks, Engineer Meggitt firmed 0.5p to 182.5p; Business Post rose 25p to 792.5p with market research group Taylor Nelson resting at 100.75p.

Compass, up 2p to 950p, was helped by Rentokil Initial's expansionist mood. Chief executive Sir Clive Thompson hinted the environmental and business support group might be ready to mount another major takeover.

Its last big deal was the pounds 2bn acquisition of BET nearly two years ago. Compass, as well as Securicor and a Danish group, ISS, have been rumoured to be in Rentokil's sights. Securicor improved 27p to 383.5p.

The 1,100p SG Securities target price for Kingfisher has almost been reached with the shares up 42p to 1,072p. Great Universal Stores, bidding for Argos, fell 6.5p to 785p, as Goldman Sachs offered around 6 million shares.

Best performing blue chip, reflecting its profit upgrading, was British Energy with a 24p gain to 494p. Bass, with Goldman forecasting 1,250p, frothed up 50p to 1,050p.

Cable & Wireless, ahead of an analysts' dinner, hardened 24.5p to 676p and Tate & Lyle was little changed at 525p after Dresdner Kleinwort Benson trimmed its profits estimates from pounds 241m to pounds 234m. It cut its forecast last month.

Not for the first time the Standard Chartered banking group was the hot takeover tip. The shares climbed 23.5p to 890p with rumours swirling Barclays, or Lloyds TSB, would today roll out a 1,300p to 1,450p bid. In January Standard's shares were down to 543p.

Norwich Union succumbed to profit taking after its results and its failure to produce a special dividend, falling 28.5p to 481.5p. Schroders, flying high on bid hopes, fell 63p to 2,332p as chairman Win Bischoff affirmed his intention to remain independent and added: "A number of people have come to tell us how wonderful they think we are but no, we've received no firm offers."

After Tuesday's order-driven trading confusion, BPB, the building materials group, traded at 355p, an alleged fall from 400p.

Aberdeen Asset Management, on the smaller cap awakening and the heady bid climate among financial companies, rose 4.5p to 109p; the price is up from 90p this year.

Car dealers again moved up a gear. Gowrings, with figures followed by a presentation next week, motored 10p to 132.5p, a high.

Merrill Lynch was in a bearish mood downgrading chemical group Brent International, off 2p to 124p, to sell. It also put reduce signs over HP Bulmer, the cider group unchanged at 335p, and Energis, up 33.5p to 530.5p.

CrestaCare, a health group, put on 1.25p to 28.75p following, it is thought, investment meetings in Scotland. Hard-pressed Waverley Mining rose 4.5p to 16p on talk of a cash injection.Three years ago the shares were 132p.

Independent Insurance continued to strengthen on its results, up another 122.5p to 1,517.5p and pub chain JD Wetherspoon rose 25p to 326.5p in response to its figures.