Record day leaves investors waiting for more rate cuts

MARKET REPORT

Records were smashed yesterday as the Chancellor surprised the market with a quarter-point cut in interest rates. The FT-SE 100 closed at an all-time high of 3,748.7, up 44.5 points on the day. Trading was heavy with almost 950 million shares changing hands in 40,000 deals.

Rumoured and actual takeover activity provided a further fillip to the session. The advance in prices was not confined to the leaders; the FT- SE 250 index registered a 22.6 point advance to 4,058.2.

The rate cut may have been a surprise, but investors were yesterday anticipating further reduction in the near future. Gilt-edged stocks finished the day with gains of up to half a point.

Bank shares fared better than most from the Chancellor's move. Barclays added 9.5p to 769.5p, Lloyds TSB improved 14.5p to 340.5p, and NatWest closed 12.5p higher at 667.5p.

Standard Chartered, meanwhile, advanced 15p to 590p on further rumours of a sale of its Asian securities business to Nava Finance of Thailand.

The waft of cheaper money whetted appetites on the retailing pitch. The principal high street groups made useful advances, notably Argos, up 4p to 579p, Kingfisher, ahead 6p to 544p, and Marks and Spencer, which rose 8.5p to 446.5p.

Only 11 of the leading 100 shares recorded falls. Guinness, down 14.5p to 474.5p, was the biggest faller after wrongfooting investors with a further pounds 39m reorganisation charge, principally relating to its Cruzcampo brewing business in Spain. The fallout from the charge, which led analysts to downgrade forecasts, and a flat trading statement affected Allied Domecq, which slipped 2p to 539p.

Several drinks analysts lowered profit forecasts for Guinness to around pounds 900m, but some said further adjustments to the numbers might be necessary. The news winkled out plenty of sellers, and by the close of play more than 10.5 million Guinness shares were traded.

For the rest of the leaders, there was only one direction - upwards. British Aerospace climbed 29.5p to 864.5p, largely on the back of the Henderson Crosthwaite broking house advising clients to buy after estimating a break-up value for the group of pounds 12 a share.

Brian Newman, an analyst at Henderson, reckoned the defence activities were alone worth around pounds 4.8bn - equal to 14 times earnings. He predicts BAe shares will continue to rise, seeing a medium-term price of around pounds 10.50.

Speculation about the next takeover targets increased as Unichem, up 19.5p to 258.5p, rolled out its expected agreed pounds 548m bid for Lloyds Chemists, up 35p to 401p. The deal will make Unichem the largest high street chemist in terms of the number of outlets, but second behind Boots, a penny firmer at 597p, when measured in turnover terms.

Body Shop recovered the ground lost from this week's downbeat trading statement and finished the day at 154p, up 3p. The outbreak of the petrol price war, however, sent Frost Group down 16p to 155p, and a poor trading report unsettled WWE, which shed 1.5p to 15.5p.

Rumours about a possible takeover of Vaux, the Sunderland-based regional brewer, refused to die down. Vaux climbed 10p to 299p, a high for 1996 and just a penny below last year's peak. Wolverhampton & Dudley, viewed by some observers as a suitor, held steady at 592p.

There was plenty of takeover gossip elsewhere to keep speculators happy. Sims Food group, which fell out of bed after announcing another profits warning on Wednesday, was in demand and climbed 7p to 38p on talk of a possible bid move by Global Group, off 0.5p to 17.5p.

The speciality chemicals group European Colour increased 6.5p to 90.5p on talk of a bid from Laporte, unchanged at 663p.

Yorkshire Tyne-Tees Television raced ahead 35p to a high of 722p on fresh bid speculation. Granada, despite being preoccupied with its fight to buy Forte, and Carlton, up 14.5p to pounds 10.42p, are the favoured bidders.

Granada, meanwhile, continued to look more and more the likely victor against Forte. Shares in Granada rose 3p to 696p - around the level they traded at when the bid started in November. Forte rose 4p to 381.5p.

The Savoy Group, up a full pound on Wednesday, gained 10p to pounds 11.30 and looks set to be a takeover target if Granada takes Forte under its wing. Stakis remained in demand, gaining 2p to 87p with more than 3.8 million shares traded.

Other bright spots included Tottenham Hotspur, 14p higher at 254p on solid interim figures, and Fairy Group, ahead 13p to 579p as James Capel advised clients to buy.

TAKING STOCK

r Shares in Geest, which recently sold its bananas business to Ffyfes, were lively as some institutional buyers appeared. The price shot up 13p to a two-year high of 237p. The rise sparked fresh rumours that Geest, principally a prepared foods group, would soon fall to a takeover bid. Hillsdown Holdings, which firmed 2p to 179p, is the main name in the speculative frame.

r Surrey Free Inns, the pub company traded on AIM, finished 2p better at 127p amid some talk that analysts may have to upgrade already bullish profit expectations. Analysts are expecting taxable profits of up to pounds 1.3m for the current year to May. Surrey is reported to be one of the best run of the new-style pub companies, and there is a growing belief that it could become a bid target.