Prospect of interest rate cuts sends shares to new high

MARKET REPORT

Interest rates, rather than the Budget, dominated the stock market. The feeling that base rate reductions are inevitable if the Chancellor's strategy is to have any chance of success overwhelmed any Budget blues, sending shares, to the surprise of many, to new peaks.

Mortgage cuts by the top lenders Halifax, Abbey National and Nationwide underlined the pressure for lower base rates. Any move is not due until the middle of next month but the growing clamour for action could force the Chancellor to act in the next few days. Most expect cuts either side of Christmas.

More records in New York and renewed takeover speculation added to the market's strength. At one time the FT-SE 100 index was up 22.2 points; it closed 6.7 higher at 3,655.5.

Abbey, the Budget day star, remained in demand on the benefits it should draw from the eventual Halifax flotation. The shares reached a 635p peak, up 17p.

Most other banks were firm, with Standard Chartered, one of the market's favourite takeover counters, up a further 16p to 596p.

Insurances remained in the bid frame. GRE put on 4p to 268p, with the story gaining strength that Legal & General, seen as a National Westminster Bank target, could indulge in a defensive merger. BAT Industries is also thought to be hovering with predatory intent.

The one offer that did materialise, albeit an indicative proposal, came from Welsh Water, which suggested it would bid up to 840p for South Wales Electricity; not surprisingly SWE found the prospect "totally unacceptable". WW was little changed at 696p; SWE rose 12p to 1,089p.

Guinness, off 10p to 459p, wilted in the face of yet more speculation about the intentions of its 20 per cent shareholder, LVMH. The French luxury goods group has denied it has any plans to lower its Guinness involvement. But stories that it is preparing an important deal continue to flow in Paris. Inevitably, there is the suspicion that it needs to utilise the cash from any reduction of its Guinness thirst.

There was also a French connection to Enterprise Oil, up 13p to 356p. Elf Acquitaine, the French oil group, sits on 12.93 per cent and is thought to be keen to realise its investment. But Enterprise lurks a long way from its year's high.

British Aerospace made further headway on the planned Orange flotation and the rumoured United Arab Emirates contract, climbing 19p to 820p. Rolls-Royce, a likely beneficiary of any UAE deal, rose 3p to 178.5p.

Great Universal Stores was the subject of more buy-back rumours. With Cazenove and Barclays de Zoete Wedd making encouraging noises ahead of next week's figures, the shares gained 14p to 615p.

Lloyds Chemists, up 11p to 268p, remained under the speculative whip, and the builder YJ Lovell again attracted keen buying, gaining 3p to 25p.

British Steel, meeting fund managers in Edinburgh, put on 3p to 170.5p.

The engineer L Gardner, placed at 125p, made an impressive debut, reaching 146p; the retailer Revelation achieved a 5p premium at 105p. Queensborough, the leisure group, returned to market at 29p with trading nudging 7 million shares.

The cider groups recovered their Budget losses. Matthew Clark jumped 29p to 655p as Panmure Gordon decided the shares were mispriced and moved into the market. HP Bulmer gained 10p to 494p.

Breweries failed to hold their Budget ferment, with Bass falling 10p to 687p. Retailers continued to suffer from the lack of Budget inspiration, with Marks & Spencer off 5.5p at 447.5p.

Lower interest rate hopes helped builders higher but many utilities failed to hold much of the progress achieved on the back of the absence of any "windfall" tax.

South Country Homes, a classic shell situation, at last produced the signalled corporate deal, with the ex-Cope Allman chief, Richard Grogan, buying 27.9 per cent and joining the board. He picked up the shares from Hambros and Hambro Countrywide at 20p. Hambros and Hambro Countrywide are bidding 20p for up to 27.9 per cent of the rest of SCH, up 7.5p to 23.5p.

Antonov, the AIM-listed group developing an automatic gearbox, enjoyed another run, up 20p at 108p. There are rumours that it is near to announcing a deal with a big motor group. But such stories have often circulated since it arrived, at 40p, on the old 4.2 share market in May.

British Biotechnology, interim figures today, jumped 50p to 1,043p and Toy Options, figures tomorrow, added 3p to 110p.

TAKING STOCK

rCapital Radio, taking in Capital FM and Capital Gold, jumped 27p to 504p with Merrill Lynch and Panmure Gordon keen on the shares. But a deal for 900,000 shares at 505p caused the excitement. Capital is expected to lift profits from pounds 26.5m to pounds 32.5m this year and could hit pounds 37m next. PG has apparently been keen on the shares for some time; Merrill has just returned them to its buy list.

rMore O'Ferrall, the poster company where Roger Parry, ex-Aegis, is due to become chief executive, is attracting some discreet takeover whispers. The group lacks a dominate shareholder and could find a determined assault difficult to resist. Profits hit pounds 9.5m last year and should top pounds 13m this year. The shares were little changed at 452p.