Market Report: Euro-merger talk and Cellnet set BT buzzing buzzing

BRITISH TELECOM kept dealers' phone lines busy yesterday as rumours of corporate action and optimism about today's results sent the stock buzzing.

The telecom group closed 37p up at 1,048p - one of the biggest risers in a sluggish FTSE 100. Buyers were attracted by growing speculation that BT will be at the centre of two major events in the fast-changing telecom world. First, the telecom giant is believed to be about to gain full control of the mobile phone group Cellnet.

According to the boys on the dealing floors, BT could soon buy out the 40 per cent minority stake owned by the security group Securicor.

The two have been in negotiations for a long time and although it is good to talk, a deal is expected over the next few weeks.

Securicor shed 9p to 549p amid fears that it might get less than the expected pounds 3bn for its prized Cellnet holding.

The second rumour wasmore far-fetched. Some market players believe that BT could be drawn into a mega-merger with one of its European competitors. France Telecom, recently jilted at the altar by Deutsche Telekom, was one name in the frame.

Deutsche itself was also mentioned, especially if it fails to get its hands on Telecom Italia.

The boring reason for BT's jump was that today's final figures will be 40 per cent up on last year to around pounds 4.3bn as the group reaps the benefits of the soaraway rise in Internet use.

The 3.7 per cent rise in BT, which accounts for over 5 per cent of the FTSE 100, helped the blue chip index to bounce back from Monday's collapse to end 40.6 better at 6,206.4. However, market watchers were cagey about the near-term outlook.

They argued that last night's interest rate decision in the US would determine whether yesterday's rise was the start of a rally or a mere dead-cat bounce.

The smaller indices also had a lacklustre day, with the mid cap finishing 5.5 higher at 5706.7 and the Small Cap falling 6.4 to 2556.9. Among blue-chips, Allied Zurich spearheaded a rally by the financials after a mild improvement in the bond market. The Anglo-Swiss insurer soared 49.5p to 764p following the decision by Charterhouse to go from "reduce" to "buy" after the stock had touched a 6-month low. There was also some vague talk that Allied could join the queue for Legal & General, 3p better at 171p on big turnover.

Lloyds TSB, 17.5p higher at 859.5p and even Barclays, 49p up at 1,773p, are the other two rumoured predators. Schroders, up 42p to 1,306p and Sun Life & Provincial, up 13.5p to 491p, joined the number-crunchers' party.

Allied Domecq frothed 25p higher at 555.5p after the legendary Warren Buffett confirmed a 2.2 per cent investment in the group. The sage of Omaha is now expected to go to 3 per cent and even higher.

Rival Bass lost 28p to 909p on fears of a costly bid war with Whitbread, down 10p to 1,029p for Allied's pubs.

Centrica flared 4p higher at 123p on hopes that it might buy the AA but the household goods group Reckitt & Colman slipped 15.5p to 716p amid rumours of a bid for the security group Williams, up 5.5p to 408p.

Marks & Spencer was the unlikely retailers' hero. It checked out a 20p rise to 399p on relief that the results were not as bad as expected.

The spectre of a profit warning failed to materialise and the current trading statement actually showed an improving trend.

The retailers' resurrection was confirmed by Next. The clothes specialist sported a 10p rise to 778.5p after reporting buoyant sales at its AGM.

The fashion frock-maker French Connection added to the optimism, shooting 22.5p higher to an all-time high of 597.5p after an upbeat trading statement. GUS, 23p higher to 693p and Arcadia, 15p better at 267.5p benefited from the sector euphoria.

British Airways was a prominent blue-chip faller. The airline nosedived 9.75p to 465.5p on fears that forthcoming figures will show a slowdown in passengers' revenue.

Midcappers were flooded with bid rumours. Alliance Unichem, the chemists' group, rose 24.5p to 422p as a predator was said to be having a look.

The metal basher Morgan Crucible jumped another 7.5p to 319p as bid talk refused to die down. A similar story sent London International Group 1p higher to 192,5p.

First Leisure rose 8.5p to 221p amid talk that Allied Leisure, up 0.5p to 23p, and Duke Street Capital might buy its bowling and discos division.

The food minnow Albert Fisher firmed 0.75p to 13p in hefty turnover. The US giant Dole could be having a look.

The mining group Lonmin, the old Lonrho, dug up a 30p rise to 500p as SG said "buy", while the computer company CMG rose 72p to 1620p after a bullish trading update.

Profit warnings took their tolls on the undercard.

Fund manager Perpetual shed 197.5p to 3,405p due to poor first-half sales and gloomy words on the future. The broadcasting contractor Gearhouse fell a massive 117.5p to 97.5p after warning of a collapse in demand.

Anglo-Welsh, the tour operator, travelled 12p lower to 79.5p after talking of sluggish bookings, while SCS Upholstery slumped 10.5p to 76.5p on lower orders, just like media agency Maiden, down 38p to 346p. On the plus side the fruit machine operator Crown Leisure hit a 13p jackpot to 39.5p after agreeing a 40p-per-share management buyout, while the shipping group Frontline soared 65p to 300p on vague takeover talk.

VOLUME: 1.1 billion

TRADES: 78,350

GILTS INDEX: 107.99 -0.19

CHARTERHOUSE Communications, a publishing group, could soon be at the centre of a bid battle. The Aim-listed financial magazines specialist jumped 1.75p to an all-time peak of 24.25p yesterday amid talk that the press giant, United News & Media, might swallow it up. Lord Hollick's empire could trump an earlier offer for Charterhouse believed to have come from Columbus. Insiders believe UNM is keen to expand in personal finance publications.

THE DRUG development group Chiroscience rose 7.5p to 254p yesterday after reporting the discovery of a gene which might fight brittle-bone disease. However, buyers were said to be attracted by the prospect of further good news: the biotech company is thought to be close to finding a partner for its star drug, the pain-killer Chirocaine. The compound was ditched by Zeneca when it merged with Astra, but Chiroscience is thought to have lined up another major drug player.