Market Report: Interest rate hopes lift shares out of doldrums

HOPES that the Government will seek to dig itself out of its 'dreadful hole' by cutting interest rates again helped shares to overcome an indifferent start yesterday.

The FT-SE index, measuring the top 100 shares, ended 6.3 points higher at 2,836.1, with the supporting FT-SE 250 index up 5.7 at 3,131.3. The 100 index has advanced 42.4 in two days.

Composite insurers were the best performers, reflecting better-than- expected first quarter figures from General Accident, up 18p at 591p. Commercial Union gained 9p to 591p and Sun Alliance 8p to 332p.

Imperial Chemical Industries, on the eve of the launch of its Zeneca drugs group, ran into profit-taking, dropping 21p to 1,263p. The shares were strong on Monday as US investors piled in ahead of today's expected announcement of the Zeneca rights issue.

The stock market is still guessing about the terms. The cash call will raise about pounds 1.3bn. A one-for-three at 580p and a two-for-seven at 600p are the most popular predictions. Unofficial dealings in the new shares will start this afternoon. Prices will be called in Zeneca partly and fully paid and ICI ex-Zeneca.

The last quoted price in the grey market organised by Salomon Brothers, the US investment house, put Zeneca at 700p and stripped ICI at 550p. Salomon ended its unofficial dealings at the request of the Stock Exchange.

As if to offer its new stand-alone rival a little encouragement, Glaxo Group responded to investment meetings with a 21p gain to 634p.

But other drug shares, still worrying about the Hillary Clinton factor, had a more subdued session.

Motor components, already ruffled by the deteriorating outlook for European vehicle sales, suffered further discomfort as analysts cut their profit forecasts for GKN, off 5p at 452p.

SG Warburg cut its estimate from pounds 150m to pounds 130m. Credit Lyonnais Laing went even lower - to pounds 120m. CLL looks for pounds 153m next year and then pounds 195m. It reckons the shares are a sell, possibly down to 400p.

The rights issue from Avon Rubber, down 31p at 509p, also unsettled the sector.

Arthur Lee, on the agreed offer from Carclo, rose 16p to 158p. Carclo lost 13p to 210p.

The session's best performer was Erskine House. The surprise US takeover bid pushed the shares 54p higher to 89p. Gestetner - as Inchcape at long last displayed its widely suspected interest, picking up a 15.3 per cent stake - rose 7p to 130p. Inchcape lost 8p to 583p.

VSEL jumped 35p to a peak of 710p. It has won the contract, thought to be worth pounds 170m, to build a Royal Navy helicopter carrier. Last year the shares were 265p.

Retailers had a mixed time. Ratners, Monday's star, retreated 5p to 35p in busy trading. Blacks Leisure assumed the role of recovery stock, up 4p at 32p.

J Sainsbury, reporting year's results today, improved 13p to 471p. Panmure Gordon has moved its stance from hold to buy. NatWest Securities is looking for profits of pounds 740m against pounds 632.2m.

But Tesco remained out of favour, losing another 5p to 216p as dealers continued to fret about growing pressure on its margins. Asda was another weak spot, down 1.5p to 67.5p.

Unigate, the milk and transport group, dipped 12p to 353p as it postponed the flotation of its US restaurants because of poor trading. Grand Metropolitan, with extensive US food interests, lost 2p to 430p in sympathy.

The group is due to report interim figures tomorrow. About pounds 400m against pounds 394m is expected.

Shell was the outstanding oil stock, up 10p at 581p. Gencor, the South African gorup, wants to buy its metal assets. A deal could be worth up to pounds 1.5bn.

Aberdeen Petroleum held at 17.25p as hostile bidder Pittencrieff claimed a 39.4 per cent shareholding.

Pilkington cracked 5p to 128p with the warrants 4.5p lower at 31.75p. The market, which still expects a takeover bid for the glass group, was unsettled by the suspension of three executives, including the chief executive, of its US operation. Trevor Jones, chairman of the US business, has taken over as chief executive.

Pilks said the suspensions followed failure to follow company rules. It added it had not suffered any financial loss over the affair.

Cannon Street Investments, the mini-conglomerate struggling at a forlorn 2p last year, continued to pick up support, improving 4.5p to 24.5p, a two-day gain of 8p. James Finlay, with confectionery and tea interests, rose 6p to 89p. Figures are due tomorrow, with Barclays de Zoete Wedd looking for a modest improvement to pounds 11m.

Burford Holdings, the property group, held at 56p. Paribas Capital Markets believes the shares are a buy. Its 'young but experienced management team has a very good record of reading the property cycles correctly', Paribas said. Profits are expected to be pounds 4m this year and pounds 4.5m next.

With recovery hopes dominating the sector a number of property shares were firm, with British Land up 8p at 265p and Bradford Properties 9p higher at 190p.

The FT-SE 100 index improved 6.3 points to 2,836.1 with the

FT-SE 250 index up 5.7 at 3,131.3. Turnover was 676.9 million shares with 28,291 bargains recorded. The account ends on 21 May with settlement on 1 June. Government stocks slipped.

Cairn Energy improved 6p to 62p, responding to the return of its 95 per cent-owned US offshoot to the American stock market. Cairn owns 95 per cent of Ceusa and is expected to raise cash by selling some of its shares. Based on the last trade in Ceusa shares, the 95 per cent interest is worth dollars 46m, not much more than Cairn's UK valuation. Ceusa has oil and gas exploration interests in the Gulf of Mexico.

Oliver Group, the struggling shoe retailer, continues to attract David Tucker, who has retail interests in the West Midlands. He materialised at Oliver, which has about 380 branches, in March with a 3.76 per cent stake. His interest is now 7.91 per cent. The Oliver family has about 25 per cent. In September Denis Cassidy, chairman of Boddington Group, took over as chairman. The shares rose 3p to 34p.