Prices soar on interest rate hopes and takeover talk

MARKET REPORT

Share prices soared yesterday, recording their best one-day gains for three months. Expectations of further cuts in interest rates and takeover rumours were the main driving forces.

The FT-SE 100 index surged 47.9 points to close at 3,710.6 and tantalisingly near the all-time high of 3,720.61 hit a week ago. Most of the trading action was among the leading stocks, although second-liners recorded reasonable gains and the FT-SE 250 index advanced 15.9 points to 4,037.5

Share trading volumes were high despite a swiftly executed and successful market raid on Forte stock by Granada. Total volume topped 900 million, of which 162 million was in Forte shares alone.

Investors side-stepped the lacklustre overnight performance on Wall Street, and share prices in London starting rising steadily from the opening bell.

The bullish tone for the session was firmly established in mid-morning trading when Granada gave the go-code for Hoare Govett and BZW to mount an assualt on Forte's shares at up to 384p each.

Many of Forte's institutional shareholders found the offer too good to refuse, and Granada was soon sitting on more than 9 per cent of the hotel company's shares. Forte finished 14.5p higher at 380.5p, while Granada's shares climbed 23p to 693p - their highest level since the television company fired off its takeover bid in late November.

The final count put total turnover in Forte at 163 million. Dealers said the bid pendulum was swinging increasing in Granada's favour, although several continued to predict a close finish when hostilities cease next Tuesday.

Prospects for cheaper money, though, held centre stage for most of the session. Longer dated gilt-edged stocks climbed three quarters of a point, making a two-day gain of around one-and-a-half points.

Optimism over interest rates was buoyed when Michael Heseltine let slip that today's unemployment statistics would show the 28th consecutive monthly fall.

Some traders were betting on the outside chance that this morning's meeting between the Chancellor and the Governor of the Bank of England might yield a quarter point cut in rates. Most, however, predicted that the Chancellor was unlikely to pre-empt a move by the Bundesbank, which meets tomorrow, and would wait until next month before lowering rates.

A smattering of takeover gossip, noticeably absent on Monday, helped keep the party going. Zeneca leapt 43p to pounds 12.91 as bid rumours resurfaced.

Analysts at Societe Generale Strauss Turnbull said that if a bid materialised for Zeneca it should be around pounds 15 a share. The name of Roche of Switzerland was again being touted as the most likely to mount a bid. Glaxo rose 17p to 902p with Hoare Govett turning positive on the stock.

Continued bid speculation pushed World of Leather a further 9p higher to 79p. DFS Furniture, steady at 399p, and Carpetright, also unchanged at 442p, are both being tipped as suitors.

Lloyds Chemists climbed 16p to 291p as rumours resurfaced that a predator was lurking in the wings. The speculative list of bidders includes Asda, a penny better at 114.5p, and Unichem, off 1p to 249p.

Composite insurers were lively as thoughts turned to possible consolidation in the sector. Guardian Royal Exchange closed 13.5p higher at 269.5p, Sun Alliance increased 13p to 379p and Royal Insurance added 9p to 393p.

Allied Domecq was again in demand, finishing 6p higher at 549p with investors becoming increasingly convinced that a disposal of its half-share in the Carlsberg Tetley brewing venture was drawing near. Bass, up 11p to 727p, and Whitbread, 4p firmer at 680p, are the favourite candidates to strike a deal with Allied.

Elsewhere in drinks, Scottish & Newcastle eased 1p to 608p as it unveiled its long-awaited rationalisation of its brewing business following last summer's purchase of Courage. Poor results from Remy unsettled one of its main shareholders, Highland Distilleries, off 4p to 326p.

The day's casualty list included Sims Foods, down 5p to 28p on yet another profits warning, and Mersey Docks and Harbour, 14p to 391p on worries that industrial unrest could cost the company contracts with shipping lines.

First Leisure slipped 7p to 368p ahead of today's full year results, which analysts predict will produce taxable profits of between pounds 9m and pounds 41m. There was a mild rumour that the group may announce further expansion of its health and fitness business.

A novel sale and leaseback of five nursing homes lifted Ashbourne, which was spun out of Stakis, by 1.5p to 134p. the deal is believed to be the first of its kind among quoted nursing home groups.

Frost Group, the petrol station company, added 11p to 181p with Credit Lyonnais Laing emerging as strong buyers. More than 800,000 were traded.

A seller of 4.7 million shares clipped 2p off Pilkington to 190p. Conversely there was a large buyer of the tiny Gaelic Resources, and the price firmed 0.25p to 1.5p with almost 44 million traded.

TAKING STOCK

rMemory Corporation, traded on AIM, is rumoured to be on the verge of clinching a trading deal with the mighty Sumitomo Corporation of Japan. The deal is said to involve repairing and upgrading rejected D-Ram computer chips which Sumitomo will buy from manufacturers and then resell to customers in the Far East. Shares in Memory were 5p higher at one stage before closing unchanged at 395p.

rShares in Scotia Holdings, the pharmaceuticals company, climbed 20p to 583p late in the day amid rumours of a pending announcement on the possibility of finding an alternative use for one of its drugs. Several delayed trades at prices up to 592p were registered after the close. The alternative use, according to one trader, was for treatment of multiple sclerosis.