Market Report: Falling gilts put paid to rally in share prices

GOVERNMENT stocks ended a three-day share rally that had lifted the FT-SE 100 index 77.5 points.

Responding to weakness in the German bund market, gilts fell by more than one-and-a-half points, dragging the index into a 4.6 fall at 3,004.8.

With trading again thin, shares could muster little resistance to the gilts retreat and erosive futures activity.

Commercial Union, however, shrugged aside the stock market's indifference, gaining a further 9p to 557p. Last week the shares were down to 524p. The advance has been accompanied by stories that it plans to buy Group Victoire, the French insurer owned by the Suez group. Any deal would probably require a rights issue.

TransAtlantic, the insurance group run by the South African Donny Gordon, held at 343p as French group Union des Assurances de Paris picked up 10 million shares at 320p, lifting its stake to 22.47 per cent. TransAtlantic and UAP control the Sun Life insurance group.

Hanson had a busy session with Salomon Brothers, the US investment house, active in the warrants and shares. Seaq recorded turnover at 11 million warrants, down 1p at 31.5p, and 7.5 million shares, off 3.75p at 250.75p.

Oils were unsettled as trading in energy futures turned choppy, causing some observers to forecast a fall of at least 50 cents in crude contracts. British Petroleum fell 3p to 380p and Shell 7p to 699p.

The futures downturn also had an impact on bid protagonists Enterprise Oil and Lasmo.

To pile on the agony, Enterprise had to contend with suggestions it was finding it difficult to add muscle, particularly cash, to its hostile bid for Lasmo. But it must tread a fine line. If a new offer is seen as too generous it will be counter-productive, sending its shares even lower.

Its shares fell a further 9p to 379p with Lasmo off 5.5p at 135.5p.

Since the bid was announced in April, Enterprise has retreated from 445p as worries about its Lasmo intentions have increased. Its bid is now calculated to be worth 120p a share.

Lasmo could be near to finding support from an unexpected quarter. It is involved in a promising discovery in Algeria which has been estimated to have reserves of between 300 million and 900 million bulk barrels. But there is talk of the forecast being lifted.

Anadarka, the Algerian company leading the exploration, is said to be meeting London institutions and making encouraging comments. Its optimism is said to be based on drilling results since the first estimate.

Hambros, the merchant bank, fell 9p to 313p. Year's results are due today. NatWest Securities is looking for a 43 per cent profit advance to pounds 93m with the dividend lifted 7 per cent to 15p.

But it adds: 'The quality of earnings is questionable, given the rapid growth in disposal profits and the lack of progress in banking'.

Electricities brightened following results from National Grid, owned by the 12 regional companies. Among other utilities British Gas rose 4p to 273p. But waters suffered from restructuring at Anglian.

Lucas Industries, hit last month by allegations of sub- standard components in the US, lost 2p to 174p. Next week it is taking parties of analysts and fund managers to France to see a new factory development.

Unilever, as the soap row faded and with help from Henderson Crosthwaite, rallied 13p to 988p; Health group Amersham International, reflecting figures, gained 33p to 971p.

On a flat drinks pitch Greenalls Group gained 5p to 420p on the back of Hoare Govett support.

Kingfisher continued to recovery from weakness caused by a possible stock overhang. The shares rose 11p to 530p.

London Clubs held its Monday premium, closing unchanged at 221p, but Ladbroke continued to weaken following its recent cautious shareholders' meeting, losing another 4.5p to 157.5p, lowest this year.

Avesco, the broadcast equipment group, at last produced details of the planned demerger of its VideoLogic off-shoot - and fell 12p to 82p. Avesco shareholders will receive priority treatment.

Tullow Oil's remarkable advance continued with its Pakistan project again creating the excitement. There was also talk of an investment presentation. The shares gained 3p to 44p.

The 535 trust launched by stockbroker Dunbar Boyle & Kingsley is seeking pounds 5m, offering shares at 50p. Athelney Trust will specialise in shares traded on 535 and other junior markets. DBK's Robin Boyle said: 'We know where the cheap stocks are buried and once we have raised the money we will go and dig them up.' Dealings in Athelney, under 535, start on 28 June.

Bullish comments from Derek Cook, chief of the D C Cook car retailing group. He said May new car sales had roared ahead 52 per cent and used car sales by 69 per cent. Three new dealerships are planned. The group has appointed Peel Hunt as a joint stockbroker. Peel believes Cook's profits in the year ended April will be pounds 2.1m against pounds 550,000. The shares rose 1p to 47p.

The FT-SE 100 index slipped 4.6 points to 3,004.8 but the supporting FT-SE 250 index managed a 6.2 gain to 3,577.6. Turnover was 482.9 million shares with 21,269 bargains. The account ends on 17 June with settlement on 27 June.

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