Market Report: Labour's confusion is a windfall for utilities stocks

Utilities provided the excitement as Footsie climbed above 4,300 points. Buy signals from the Schroders investment house and Labour's sudden display of confusion over the scope of the threatened windfall tax produced determined buying with United Utilities leading the way, up 26.5p to 670p.

Schroders was thought to be telling clients water shares could experience a 20 per cent upside with UU identified as its preferred investment.

Uncertainty over the extent of Labour's much heralded tax and, indeed, doubts about its privatisation policy spread the buying throughout the former nationalised groups.

Much of the interest appeared to come from private investors. Said Marshall Whiting at Societe Generale Strauss Turnbull:

"Most of the fund managers have made an investment decision on the utilities and are sticking with it."

In the past few weeks former nationalised groups have benefited from a dramatic change in the stock market's estimates of the impact of a Labour government. Panmure Gordon, UBS and Credit Lyonnais Laing have played down the damage of a windfall tax and the prospect of greater regulatory interference if Mr Blair makes it to No 10.

There is a feeling any changes will have little relevance to dividend growth and some even believe they could prove beneficial.

The outbreak of interest in utilities is the first time the election campaign has provided any significant excitement in the market. Generally it has remained indifferent since John Major started the dash to polling day.

In the past two campaigns the privatised groups have had volatile times and the market has also been much more tense. The extent of the Labour lead in the opinion polls has blunted the election shenanigans. But if the Labour advantage continues to decline and the party remains split on the windfall tax and privatisation then shares could wake up to the election with prices responding to the sounds of political gunfire.

The main utilities made progress with the leading water companies higher and the generators in fine form.

Others where the windfall tax hovers moved ahead; BT, with help from SocGen and SBC Warburg, rose 9p to 442.5p; British Airways 11p to 656.5p and Railtrack 10p to 429.5p.

Footsie ended 20.9 points higher at 4,313.2 with a hesitant New York opening shrugged aside.

Among other blue chips Mercury Asset Management put on 19.5p to 1,274p as Dresdner Kleinwort Benson switched its advice to buy.

Drugs had a rather more subdued time although Glaxo Wellcome rose 20p to 1,108.5p on encouraging trials of its Lamivudine drug in hepatitis B treatment. Biocompatibles International rose 82.5p to 1,375p on US clearance for its Proclear replacement contact lens.

Analysts' meetings left Granada unchanged at 905.5p; British Steel's slide continued with Morgan Stanley and Salomon Brothers adding to the negative sentiment. The shares fell 1.5p to 148.5p. Unilever rose 25.5p to 1,559p on Warburg support. FKI, the engineer, was little changed at 186.5p despite a UBS buy signal.

Tate & Lyle, the sweetener group, rose 8p to 444p on suggestions it could attract a takeover approach; results are due soon.

Verity was back in demand, up 4.5p to 51.75p. Its wafer-thin sound system has now been taken up by Samsung, the Korean giant. Verity has already linked with Japanese giant NEC. Its shares were 9.75p in July.

Tracker Network's return to profits drove the shares 40p ahead to 575p and Betacom moved to a new 12 month high, up 4p to 70p, on speculation about Alan Sugar's plans for his third string quoted company.

Wiggins, the property group, held at 10p as MAMs revealed it had built a 3.41 per cent shareholding; South Country Homes climbed 4p to 30.25p on vague talk of bid action.

JN Nichols, the soft group famed for Vimto, was 9p higher at 195.5p on rumoured interest. Bass, the brewing giant controlling the Britvic soft drinks enterprise, was put forward as a likely buyer. Wedderburn, the property group which has evolved as an oil trader following an acquisition, shaded 1.5p to 28.5p. It is felt it has another oil bid in its sights.

Relyon, the bed maker also involved in closed circuit TV, moved 3p higher to 353.5p. Stockbroker Granville Davies believes the shares are undervalued. It forecasts profits will hit pounds 8.5m this year, against pounds 7m, and then stretch to pounds 9.4m. With pounds 9.3m in the bank the group could be set for takeover expansion.