Market Report: Spotlight on Compass and Rentokil as blue chips pause for breath

After seven days of takeover-inspired excitement, blue chips paused for breath although the search for the next corporate marauders continued unabated.

One possible Footsie marriage which is attracting some of the more alert stock market minds involves two aggressive groups - Compass, the contract caterer, and Rentokil Initial, the environmental and property group.

Rentokil's last major deal was the controversial takeover of BET nearly two years ago. Compass has indulged in a string of more modest acquisitions. The two could make a splendid fit and it is thought Sir Clive Thompson, Rentokil's chief executive, is keen to spread into catering.

Capitalised at pounds 8.5bn, Rentokil is by far the larger of the two companies and would probably be the vehicle for any merger. Compass is valued at pounds 2.6bn. The shares of both are near their peaks but eased with the rest of the stock market, Compass slipping 7p to 790p and Rentokil 0,75p to 296.75p.

Footsie's record-breaking run ended with a 17 points fall to 5,595.8. At one time it was off 42.2.

An uncertain New York and nagging worries that the Monetary Policy Committee could be tempted to lift interest rates today, as well as a little old fashioned profit-taking after the recent surge, combined to take the edge off blue chips.

Much of the action was concentrated on second-liners with the Midcap index up 19.9 points to 4,935.8, just 8 from the peak hit in October. The Smallcap index rose 4.6 to 2,393.2, a new high.

Builders and engineers, for so long the great unloved, stole the limelight. On the back of the surprisingly encouraging Bryant results, Redrow gained 11.5p to 163p, Wilson (Connolly) 7p to 152.5p and Barratt Developments 8.5p to 257p. Crest Nicholson rose 10.5p to 106.5p.

Since it arrived nearly four years ago Redrow has been a disappointing investment. The shares were floated at 135p; their peak was 177.5p, reached last year.

Engineers again scored from the feeling that they have been oversold on the back of Asia's problems and sterling's strength. Weir, 20p to 248.5p; Laird 22p to 412.5p; and Spirax-Sarco, 32p to 601p, led the field. But engineer Beauford slumped 8p to 15p after warning profits would be hit by both the pound and the Asian upset.

Among blue chips Vodafone, 20.5p to 504p, enjoyed support on the now unstoppable story that more consolidation is coming in the telecoms industry, and on the still highly charged banking pitch National Westminster Bank took up the running, gaining 46p to 1,145p.

Other banks caught in the swirling clouds of takeover rumours included Royal Bank of Scotland (31p to 933p); Barclays (48p to 1,948p) and Standard Chartered (12p to 687p).

Reuters, under pressure following a US investigation, recovered 40p to 560p and Pearson rose 13p to 807p on Greig Middleton comments. Salomon Smith Barney gave EMI a spin, nudging the shares 4.5p higher to 466p.

Dalgety was the best performing midcap, improving 49.5p to 343p on the pounds 715m pet foods sale and the pounds 650m earmarked for shareholders. Dresdner Kleinwort Benson sees the shares going to 400p.

BSkyB, helped by its results, rose 7p to 368p. A tax-efficient bed and breakfast deal in 21.48 million shares went through at a shade above 333p.

British Airways climbed 5p to 540.5p with Salomon suggesting a 635p target.

Scottish & Newcastle, the nation's biggest brewer, rolled out a 12.5p rise to 827.5p after meeting analysts but indications that Bass may be outbid for the Japanese owned InterContinental hotels chain by Ladbroke knocked the shares 21p to 944p. Ladbroke put on 10p to 300p. Whitbread, still seemingly ruffled by a share overhang, softened 25p to 940p.

The Camalot threesome were subdued with Cadbury Schweppes off 27p at 732p and De La Rue easing 2.5p to 359p; Racal Electronics held at 260p.

PSD, the recruitment group, rose 11.5p to 557.5p following a presentation at Killik. The stockbroker is forecasting profits of pounds 8m for last year compared with pounds 4.9m. For this year Killik suggests pounds 9.5m, putting the shares on a prospective earnings multiple of 20.

TT, the conglomerate, moved ahead 21p to 271p. DKB and ABN Amro Hoare Govett said buy.

Jumbo International, the old Self Sealing Systems, gained 2p to 24.5p, reflecting recent director buying, and Emerald Energy, seeking oil in Colombia, was busily traded, gaining 0.5p to 8.5p after what appeared to be an encouraging progress report.