Market Report: Fragile Footsie rally fails to convince

THE CRASH so confidently predicted in some quarters failed to materialise as Footsie, after a nervous session, managed to recapture some of Friday's lost ground.

But it was not a convincing performance. Order-driven trading, by its very nature, increases volatility and the index swung between extremes of a 76.7-point gain and a 32.5 loss, which tended to underline the fragility of the stock market.

Trading was again moderate. Traders spent much of the session complaining about the lack of business with, it seemed, many investors sitting on the sidelines.

Sentiment was helped by renewed takeover speculation. The sharp fall since shares peaked in July has left many groups looking decidedly vulnerable. Banking and drugs are the two sectors where corporate activity is expected.

Investment house CSFB was said to be telling clients that the fall had been too steep and drugs and life insurers looked attractive. The private client broker, Redmayne Bentley, told clients it did not expect a bear market "though we could still drift some way in the coming weeks".

Strategist Allan Collins said: "When stocks drop sharply on short-term trading and `bad headlines', investors should buy - getting into the market on a big correction should prove to be a good move in the longer term."

New York provided the prop for blue chips, with the turmoil in Russia and worries about the Far East and Latin America pushed into the background.

HSBC, the banking group, was one of the best-performing Footsie constituents as the Chinese authorities again came to the rescue of the beleaguered Hong Kong market. Aggressive buying produced another seemingly confident session, with the Hang Seng index rising 4.2 per cent.

The sterling-denominated HSBC shares responded with an 83p gain to 1,374p and Standard Chartered firmed 26p to 595p.

Although Footsie rallied, up 76.7 points at 5,553.7, the rest of the market remained in the doldrums. The mid cap index tumbled a further 18.5 to 5,056 and the small cap lost 9.3 to 2,289.3.

Retailers had another raw session with MFI, the furniture group which has been in seeming relentless decline this year, hitting another low. The shares, in brisk trading, lost 3p to 43p on worries that next month's shareholders' meeting will be particularly gloomy, possibly encompassing a profits warning. A few weeks after the meeting MFI is due to start a round of City investment presentations.

Asda, in its ex-dividend form, gave up 4p to 175.5p and Safeway 4.25p to 312p. Whitbread, now more a retailer than a brewer, lost 12p to 788p.

Barratt Developments, the house builder, was demolished 13p to 190.5p, its lowest for almost three years. Rival Beazer, off 8.5p at 140p, is due to report profits the week after next, with Barratt reporting towards the end of August.

Vaux dropped 19p to 278.5p, the lowest since takeover speculation gripped the shares earlier this year. The brewer and hotelier did receive an approach but talks were broken off. It has since said it is not involved in corporate discussions.

Hillsdown, due to split itself into three, shaded 3p to 158p as Unigate denied it had reopened bid talks.

Diageo, the spirits giant, put on 26p to 678p as Merrill Lynch made positive noises but Allied Domecq, despite a cautious trading statement and support from some analysts, softened 2p to 538p.

Rage Software, the computer games group, firmed 0.5p to 12.75p. There are suggestions that Eidos, off 40p at 672.5p, could pounce: the group has made no secret of its ambitions to expand through acquisitions. The feeling that it intends to shower its shares around is one reason behind their fall from 1,262.5p when it announced its takeover intentions in June.

Phytopharm, up 13.3p to 129.5p, has clinched the expected deal with a major drugs group: Pfizer turns out to be giant involved. It is collaborating over Phytopharm's obesity drug, which is seen as having intriguing prospects. But any drug will not arrive on the market before 2003.

Vymura, the wall coverings group, added 10p to 124p after multimillionaire Trevor Hemmings lifted his stake to 25.4 per cent, buying 810,000 shares.

Limelight, the hard-pressed bathrooms and kitchens group, firmed to 37p on talk of corporate action. The price was 200p last year.

Desire Petroleum, seeking oil and gas off the Falkland Islands, fell 20p to 130p, just one penny above its low. Reports of exciting developments have gone round, including stories of oil-soaked penguins sighted in the Falklands. Emerald Energy, which should be ready to report on its Colombian drilling, jumped 1.25p to 7.5p with, according to Seaq, nearly 29 million shares traded.

Ted Baker, the clothing group, firmed 10p to 137.5p following Charterhouse Tilney comments. Queens Moat Houses rose 2.5p to 28.25p after reports of bid action, seemingly from Hanover International run by Peter Eyles.

SEAQ VOLUME: 610.5m

SEAQ TRADES: 51,226

GILTS INDEX: n/a

ELECTRONIC FUNDRAISING, a lottery on the Internet, made a winning debut on the fringe Ofex share market, hitting 155p from the 100p at which shares were sold to investors to raise pounds 4.5m.

It is one of the strangest creations to arrive on the lightly-regulated market. Based at Borehamwood in Hertfordshire, it is licensed in Liechtenstein to run world-wide lottery games and weekly lotteries.

TOROTRAK, the transmissions group hived off from BTG, seems likely to crash out of the mid cap index next month. The shares shed 21.5p to 188.5p; they arrived last month at around 300p.

DMATEK, an Israeli company, jumped 11.5p to 42.5p on hopes it will benefit from electronic tagging. A government contract worth around pounds 100m, is possible and Dmaket supplies at least two firms in the running.