Market Report: Second-liners ride wave of European rate hopes

INVESTORS continued to clamber for second-line stocks yesterday, pushing the FT-SE 250 index to its fourth peak in as many days with a 28.8-point surge to 3,335.2.

That performance outshone the FT-SE 100, which finished off its best levels of the session at 2,941.7, up 15.2, having been as high as 2,954.5 - just 2.8 points shy of its all-time high of 2,957.3.

Volume trading for the first day of the account was very respectable, almost reaching 700 million shares with more than 450 million of that total claimed by non-Footsie companies. Dealers were again said to be short of stock. Nearly 38,000 bargains were struck.

The belief that European interest rates would soon begin to tumble grew stronger, but gilt-edged securities were overhung by last Friday's pounds 1.3bn tranche of stock from the Bank of England. Prices moved an eighth of a point either way.

With investors expecting UK interest rates to fall by a full point by the November Budget and to 4 per cent by Christmas, several chartists increased their year-end predictions for Footsie to as much as 3,500.

A note of caution about the dangers for investors chasing the market too high, however, was sounded by NatWest Securities, which said the benefits of a collapse in the exchange rate mechanism were questionable. Its Footsie forecast remains unchanged at 3,000.

Meanwhile, investors pushed on regardless yesterday, latching on to some favourable economic news which boosted consumer-related sectors in particular.

The economic uplift to sentiment came from the surveys showing an improvement in manufacturing employment in July for the first time in two years, a 0.7 per cent increase in house prices, and a drop in average pay rises to 2 per cent.

Icing on the cake was provided by early reports of good sales of 'L' registration cars. T Cowie gained 9p to 264p, Dagenham Motor climbed 15p to 123p, and Perry Group advanced 6p to 189p.

Cowie's half-year results are out on Thursday. Analysts' expectations are pitched at a pick-up from pounds 12m to pounds 15m in pre-tax profits, and a 12.5 per cent boost in the dividend to 2.25p.

There was a late rumour that TLS, the car hire company, was gearing up for recovery by sharply increasing its orders for new registrations from last year's depressed 60 to around 300. Shares are 16p.

Stores were very much in demand. Some 1.7 million were traded in Dixons, up 2p to 217p, some 2.3 million in Kingfisher, ahead 11p to 645p, more than 4 million in Marks and Spencer, 9p to 362p, and 2.9 million in Next, up 5.5p to 191.5p.

NatWest Securities, in this instance, are buyers of the sector. They say the sector is set to enjoy an 'Indian summer', providing the opportunity to rationalise and reconstruct stores portfolios. M&S, Kingfisher and Storehouse are favoured.

Elsewhere in stores, Body Shop closed 2p better at 218p, after 222p, following Friday's result in the High Court against the Channel 4 documentary.

Banks were subjected to more rights issue rumours, particularly National Westminster, which firmed 2p to 497p ahead of today's release of interim figures.

The forecast for NatWest's profits is wide, ranging between pounds 285m and pounds 353m against the pounds 211m made in the same period last year. Dividend is expected to be held at 4.15p.

Lloyds, which reported disappointing results on Friday, retreated further. Shares, which also went ex- dividend, lost 18p to 539p. Barclays, due to report on Thursday, hardened 4p to 486p.

Yesterday's numbers from Abbey National were well-received, and the shares gained 9p to 392p.

Recent strength among the merchant banks continued. Kleinwort Benson, with interims due on Thursday, put on 12p to 450p.

Its sectoral neighbours SG Warburg firmed 1p to 770p, having hit 778p at one time, and Hambros advanced 9p to 374p.

Confirmation of takeover rumours in the weekend press pushed the struggling Spring Ram up 15p to 69p. Several other building materials companies, however, saw recent improvements undermined by profit-taking. They included RMC, off 12p to 793p, Redland, down 10p to 505p, and BPB Industries, which eased 1p to 230p.

Dealings in McInerney were suspended at 9p, pending the conclusion of discussions with non-bank financial creditors.

Europa Minerals jumped 6p to 40p ahead of an expected two-way takeover tussle for the company.

Ashtead leapt 19p to 236p on a 21.5 per cent profits improvement. Flying Flowers' debut was marked with an 11p gain on the 65p flotation price.

The account started with the FT-SE 100 index rising to within three points of its closing all-time high of 2,957.3 in morning trading. Gains, however, were trimmed by profit-taking and the index closed at 2,941.7, up 15.2. Account ends on 13 August and settlement is on 23 August

Shares in Highland Distilleries were lively yesterday, rising by 6p to 328p amid some renewed speculation that the company may soon mount a long-expected joint takeover with IDV of the unquoted North British Distillery. Robertson & Baxter, 35 per cent owned by Highland, is the largest shareholder in North British with a 33 per cent stake. Estimates of the bid price are put as high as pounds 100m.

Suter, run by David Abell, still has an appetite for James Wilkes shares. It has bought another 100,000, taking its holding in the engineer to 3.27 million, equal to 18.56 per cent. Rumours that Suter may be preparing a bid have been around for some time, although there is some talk that a takeover move will come from a different quarter. Wilkes rose 2p to 89p after yesterday's disclosure.

Capita Group, provider of management services to local authorities, advanced by 10p to 162p on an announcement of a pounds 4m deal to buy West Wiltshire Software. Credit Lyonnais Laing, broker to the company, also released a buy circular. It expects profits to rise from pounds 1.8m to pounds 2m in the current year. Laing also favours Menvier-Swain, the emergency lighting group. Menvier rose 10p to 617p.

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