Market Report: Banks take the lead as the last account closes

BANKING shares led the charge on the last day of the last account.

Lloyds, Royal Bank of Scotland and National Westminster made the running, each drawing their inspiration from differing sources.

The revised merger scheme being devised by Cheltenham & Gloucester Building Society prompted the interest in Lloyds, up 21p at 557p. C&G hopes its new plan, which is expected to clear the way for the Lloyds takeover, will be ready next month.

But NatWest Securities is not enthusiastic about the deal, which has excited many observers. It says: 'Whether Lloyds gets C&G or not we remain cautious on the shares.'

Traditionally Lloyds kicks off the banking profits season and its results are due at the end of the month. NatWest is looking for pounds 672m, up from pounds 498m.

Royal Bank, still feeling the impact of the Smith New Court placing, ended 3.5p higher at 401p. The shares got a lift as the old story reappeared that its dazzlingly successful Direct Line insurance operation was about to be sold.

Some suggested Direct Line, on course for profits of about pounds 100m this year, would be the next significant flotation. There was also talk that a big insurance group planned to buy Direct Line in what would, in effect, be a reverse takeover deal.

NatWest's strength stemmed from the modest improvement in profits at its US operation, adding 16p to the shares at 470p.

Other banks were firm. HSBC, helped by the strength of the Hong Kong market, rose 31p to 727p, and Barclays 15p to 554p.

The rest of the stock market was also in form, with the FT-SE 100 index up 24.4 points at 3,074.8 in often busy trading.

The last day of the old account system, replaced by rolling settlement on Monday, featured at least one fairly large programme trade, by the US investment house Goldman Sachs, which lifted turnover to 856.4 million shares, best for weeks.

The much busier trading could also have been due to private investors, uncertain of rolling settlement, closing positions. But extended settlement schemes have been introduced.

It could be argued that the account system disappeared in a blaze of optimism with Footsie gaining 138.4 points over the two weeks with a 110 advance in the past three days.

Yesterday's gain was achieved despite a lacklustre New York display and underlined the growing conviction that Britain's economy is moving firmly out of recession and there is no compelling reason for an increase in interest rates.

The reappearance of bid action also helped sentiment. The possibility of the two leading supermarket chains - Tesco and J Sainsbury - squabbling over William Low, the Scottish chain, is the sort of development likely to inspire the market.

Low jumped 17p to 253p with Seaq putting turnover at 3.5 million. There was some aggressive buying with 250,000 shares picked up at 255p against a 225p offer price. Sainsbury shaded 2.5p to 397p and Tesco was firm at 233p.

United Biscuits had an uncomfortable session with a big overnight trade and talk of two profit downgradings doing the damage. The shares were at one time down to 305p but closed at 309p, off 5p. Hobson rose 1p to 21p as Yorkshire Food confirmed its interest, spending pounds 1.9m on eight million shares.

Thorn EMI's failure to confirm demerger rumours left the shares 9p lower at 1,065p.

Hartstone, the leather group, duly produced its rescue rights issue. The pounds 30m call left the shares down 10p at 22p.

British Land was briskly traded, with a large line going through. The shares ended 13p higher at 425p.

Drinks were strong, encouraged by the Government's look at the cross-Channel 'booze cruisers' and the warm weather. Whitbread, ahead of next week's shareholders' meeting, frothed up 17p to 541p.

Ricardo, an engineering consultancy, firmed to 140p as its rights issue attracted a 90.3 per cent take-up and Hoare Govett placed the rump at 136p.

London Clubs, the casino group, slipped 2p to 228p. Some large lines of stock went through but the Barclay brothers, David and Frederick, let it be known they had not sold any of their 30 per cent interest.

Wagon Industrial Holdings, an engineering group, gained 21p to 499p, the result of investment meetings by its chief executive, John Hudson.

The sudden swing in market sentiment has raised hopes that 3i will enjoy an enthusiastic reception when trading starts on Monday. The offer was subscribed 1.1 times and it was feared the shares of what many regard as 'UK PLC' would struggle to achieve a premium. But there are expectations that if the market remains firm they will top 280p against the 272p issue price.

Automotive Precision Holdings, maker of car components, has wasted no time displaying its charms to analysts. Less than two months after its market debut it entertained seven analysts at its Tonbridge, Kent, headquarters. The shares, placed at 100p, gained 5p to 111p. The group supplies a wide range of manufacturers including Jaguar and Nissan.

The FT-SE 100 index ended with a 24.4-point gain to 3,074.8, the highest for nearly eight weeks. The FT-SE 250 index gained 21.6 to 3,551.3. Turnover was 856.4 million shares with 32,578 bargains recorded. Government stocks gave ground.

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