LONDON MARKET: FT-SE 100

UK STOCKS may fall this week, led by engineering companies, as earnings reports from British Steel and Siebe stoke concern that profit growth will slow. "Company results are going to be under much more pressure, and some analysts' projections are far, far too high," said Simon Toynbee, investment manager at Majedie Investment.

Gilts are expected to rise on hopes that the US will cut interest rates on Tuesday, boosting expectations for a cut in UK rates. "Given a probable US rate cut, and with domestic economic data likely to prove weak, attention will turn back to the chance of a December rate cut here," said Juli Collins- Thompson, fixed-income analyst at BNP Global Markets Research.

On Friday, gilts rose, as investors looked beyond December to expectations for lower rates next year. The benchmark 9 per cent 10-year gilt yield fell 4 basis points to 4.95 per cent. Kevin Adams, a strategist at Barclays Capital, says that even if rates aren't cut next month they'll have to fall rapidly next year. Barclays' current forecast is for rates to fall as low as 5.5 per cent in 1999, although Mr Adams concedes "the risk to that forecast is on the lower side. The market isn't really reflecting that yet, so there's still some value to be had [in gilts]".

Shares fell last week as Marks and Spencer, Booker and Reciktt & Colman joined a growing list of companies warning that profits will be hurt by waning demand. "It's the result of the economic slowdown, the ridiculously high interest rates we have and the strong pound," said Mr Toynbee. Last week, the FT-SE 100 index fell 0.51 per cent. The banking index led stocks lower, losing 2.7 per cent.

Losses may be offset by telecommunications companies, such as Vodafone, which reports first-half profits. Analysts expect a pre-tax profit increase of 33 per cent to pounds 395.2m.

British Steel is expected to say that first-half profit fell as much as 44 per cent as the pound strengthened and as weaker steel demand in Asia cut prices.

Siebe, which makes more than a third of its sales in Europe, also reports first-half earnings. Its profits have suffered this year as the pound strengthened. "One would expect the tenor of company statements to be fairly cautious," said John Hatherly, at M&G Investment Management.

Bucking the trend, oil companies, such as BP may gain, benefiting from rising oil prices on concern that supplies from the Persian Gulf could be disrupted if US-led forces attack Iraq.