Market Report: Footsie peaks on interest rate euphoria

THE STOCK market seemed intent on putting on a topsy-turvy display yesterday. As sterling fell to new lows and worries multiplied about inflation and the stretching dole queues, shares soared joyfully to their highest level ever.

The FT-SE index, covering the top 100 shares, jumped 39.4 points to 2,873.8 and the index mirroring the next 250 gained 28.3 to 3,023.6. The advance, Datastream calculated, lifted the market's valuation by pounds 8.05bn to pounds 639.8bn.

Interest rates prompted the euphoria. There was a growing conviction that Germany will have to lower money rates today to prevent Denmark and France abandoning the already creaking ERM. If, ran the argument, the Germans at last cut their rates the way would be clear for the Government to make yet another UK reduction, probably before the Budget.

Another possibility, the demise of the ERM, was viewed as positive for UK rates.

The excitement, to some extent self-feeding, was helped by a flurry of takeover rumours, with banker TSB Group the main candidate, and two programme trades with a buy bias.

Top shares were last at a peak at the start of last month when the FT-SE 100 index hit 2,861.5. But the second-string FT-SE 250 index has romped to new highs half a dozen times this year. The third and fourth-division stocks have also joined in the fun, unlike other recent bull markets.

Futures and options activity was strong with much of the emphasis on further price increases.

TSB attracted 1,187 call contracts with the cash market pushing the shares 8p higher to 177p.

Lloyds Bank was again wheeled out as the most likely bidder. A price of 220p a share went the rounds. National Westminster was also pulled into the frame with a 225p bid. Germany's Dresdner Bank and Credit Lyonnais, the French group, are other possible contenders.

Lloyds rose 6p to 560p and NatWest 19p to 481p. Rumours that TSB's days of independence are drawing to a close are becoming increasingly strong.

Since Lloyds failed to capture Midland Bank last summer there has been a growing realisation that TSB represents its only remaining avenue for high-street growth.

Credit Lyonnais and Dresdner must also view TSB as the last chance to acquire a UK branch network. Any takeover would almost certainly include a move to sell Hill Samuel, the troublesome merchant banking side.

Banks, also drawing strength from the interest rate excitement and the looming dividend season, were one of the best-performing sectors. Insurances, reflecting the value added to their investment portfolios by a high- flying market, were also in fine form with Commercial Union, throwing off rights fears, up 17p to 624p.

But Trafalgar House, another rights candidate, missed the party. The shares were slightly easier at 93.5p as the market awaited the promised delivery of 5 per cent of the capital to Hongkong Land.

It is widely believed the mystery securities house that undertook the exercise has managed to acquire the necessary shares to complete the deal.

Oils were mixed. Shell rose 8p to 577p, ignoring take-profits advice from Shaw & Co. Drugs remained depressed although Glaxo Holdings, after a see-saw session, ended 10p up at 665p.

The demise of DAF lifted lorry maker ERF 26p to 231p and Trinity Holdings, maker of fire engines, 11p to 183p.

British Aerospace, despite 11 per cent of DAF, climbed 13p to 287p with General Electric Co bid talk still circulating.

High-flying Tadpole Technology added another 36p to 326p after fund managers visited its headquarters. A company related to Tadpole director Howard Kitchner sold 73,000 shares at about 290p on Tuesday.

BPB Industries rose 10p to 214p as analysts visited its French operations. Granada, up 4p at 363p, reflected institutional meetings.

Booker, the food group, enjoyed Kleinwort Benson support, improving 12p to 433p. Unilever strengthened 17p to 1,148p on switching out of the Dutch operation.

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Porter Chadburn, the leisure goods and US packaging group, gained 2p to 30p in active trading, including a 4.5 million share deal. Doeflex, a plastic materials group, jumped 17p to 141p as, it appears, someone shopped determinedly for 10,000 shares.

Photo-Me International held at 380p. Greig Middleton is keen on the shares, forecasting profits up from pounds 16.4m to pounds 19.8m.

Cranswick, a meat group, has the support of Charterhouse Tilney, which forecast profits of pounds 2.3m against pounds 1.71m. The shares held at 184p.

Shares romped enthusiastically to new highs yesterday. The FT-SE 100 index closed at 2,873.8 and the FT-SE 250 above 3,000 for the first time at 3,023.6. Trading was again busy, with Seaq putting volume at 857.7 million shares. Bargains totalled 34,807. Government stocks were firm

Grim tidings could be on the way from Northumbrian Fine Foods, the biscuit maker. It was due to announce interim figures yesterday but cancelled at short notice. The company - which saw profits slump last year and passed the final dividend - said it was 'in reorganisation discussions . . . expected to have a material effect on the interim results.' The shares held at 19p.

Next, the retail group, put on 3.5p to 143.5p as securities houses drew attention to its little-known investment in BSkyB, the satellite TV group. The Next stake is relatively tiny - just 0.5 per cent. But with publisher Reed Elsever seeking approaching pounds 100m for its 3.66 per cent interest the Next involvement should have a valuation of at least pounds 10m.