Market Report: Financial shares set the pace as takeover hopes grow

Financial shares, which for long led Footsie higher on technical considerations, are once again setting the pace - but this time its down to takeover hopes.

Abbey National stole the stock market show yesterday. Others, like Norwich Union and Woolwich, also enjoyed the action.

At one time Abbey was up 42p; it closed with a 34p gain at 954.5p. The first building society to turn itself into a bank has already had an eventful year, holding talks with a number of rivals and being linked with the likes of National Westminster.

Now it is being suggested that Barclays, when it collects its BZW cash, could be tempted into a bid by Abbey's huge mortgage book. But the suspicion that it could regard Abbey as too big to swallow drew attention to Woolwich, up 3.5p to 317.5p. It is capitalised at pounds 5bn against Abbey's pounds 13bn.

The Abbey advance was helped by bullish comment from HSBC, ahead of a trading statement in the next two weeks.

Norwich Union remained firm, gaining another 3.5p to 351.5p with NatWest Securities still on the buy tack.

Other insurance groups made headway with speculation about corporate action never far away. GRE gained 7p to 325p; General Accident 19p to 1,085.5p and Commercial Union 9p to 806.5p.

The feeling activity is near also lifted Halifax, 14.5p to 742p; it is big enough and has the resources to mount a major strike and insurance is an obvious attraction. Lloyds TSB, another with insurance ambitions, gained 8.5p to 791p.

Northern Rock, the last building society to convert into a bank, was also engulfed in speculation. A bid from a long-standing bank - Barclays, again, or National Westminster - was one story. An even more bizarre one contemplated a strike from Great Universal Stores. Such a deal would be the ultimate in the current round of bank-retailer links. The shares jumped 16.5p to a 498p peak. They ended their first day's trading last week at 463p.

The earlier more technical financial feast stemmed from the rush of demutalisations, forcing tracker funds to adjust their portfolios.

Footsie, in lacklustre trading, manage to yawn to a 9.5 points gain at 5,227.3. Supporting shares made headway with the FTSE SmallCap index reaching a peak.

Ladbroke's impressive canter came to an abrupt halt as SBC Warburg suggested a 270p price; it fell 5p to 293p.

RioTinto, the resources giant, added 4p to 974.5p following an analysts' trip to Nevada but GKN dipped 7p (after 35p) to 1,396.5p following Societe Generale Strauss Turnbull caution.

Appleyard, which has looked vulnerable for some time, motored 12.5p to 78.5p as Jardine International, the Far Eastern group, appeared with an 80p-a-share offer pricing the garage chain at pounds 53.3m.

Redland hardened 17.5p to 257.5p as takeover rumours went the rounds. Last week chairman Rupert Agnew conceded the hard pressed building materials group could be wide open to a bid. However some of the gain could have been due to the higher German interest rates, which should take some of the pressure from Redland's continental operations.

Premier Farnell, the electrical equipment distributor, added 10.5p to 551p ahead of Monday's interim figures. Around pounds 74m against pounds 63.8m is expected.

Allied Domecq, the pubs and spirits group, rose 5.5p to 496p, anticipating its strategic review and Highland Distilleries, the Famous Grouse Scotch whisky group, bumped along at its 12 month low of 284p; there are worries it may have to help out its French partner, Remy Cointreau, through a rescue bid or capital injection.

Engineer IMI added 10p to 439.5p, a high. The company is benefiting from its pounds 86m take over of Herion-Werke, a German pneumatic valves group.

Nottingham Forest, the latest football club to make its debut, failed to score, ending at 61p against the hoped-for 70p.

Pan Andean Resources held at 35p. It and other mining shares in the John Teeling stable are thought to have been depressed by a forced seller.