Market Report: Oil shares calm troubled post-election waters

OIL SHARES flared as the rest of the stock market fretted about the Tory election disaster and the expected increase in US interest rates.

The dramatic British Petroleum revival has provided further evidence that the oil sector is recapturing past glories. It has the added excitement of that currently elusive influence, takeover action, as well as the likelihood of more encouraging trading bulletins.

With the crude price edging higher the sector display should continue to improve, with many observers looking for it to outperform the rest of the market.

BP's recovery has prompted even the long-standing bear Societe Generale Strauss Turnbull to switch its recommendation from sell to hold. The shares, up 16.5p in response to the results on Thursday, edged ahead a further 3.5p to 403p, highest since the heady, pre-crash days of 1987.

Two years ago they fell below 200p when terrible results led to the dividend being slashed and departure of the chairman, Robert Horton.

Next test for the oil revival occurs next week when Shell, up 11p to 732p, reports its first-quarter figures. The market is looking for net income of pounds 1bn against pounds 971m.

Lasmo eased 2.5p to 147.5p as the market waited for the expected counter to the Enterprise Oil offer. Atlantic Richfield of the US, the French Elf group, and PowerGen are among the candidates. BP, in view of its share price strength, has also entered the frame. Enterprise improved 10p to 431p, lifting Salomon Brothers' estimate of the bid value to 139p.

The rest of the market had a roller-coaster session. The Tory poll humiliation appeared to have been discounted and the FT-SE 100 index had achieved a 15.6- point gain by lunchtime.

Then strong US employment figures triggered the spectre of higher US interest rates. Bonds and equities on both sides of the Atlantic retreated.

Within an hour the 100 index had swung to a 13.7 loss, but it rallied to close unchanged once the message got around that any increase was unlikely to occur until next week or even later.

But the market's faith could be misplaced. Once it closed, the feeling grew that the interest move would take place in the next few days. Shares are, therefore, likely to be pushed sharply lower on Monday.

Government stocks, too, had an erratic session, ending with falls of more than one point.

Eurotunnel 'celebrated' the official tunnel opening with a 10p fall to 450p as the shape of the refinancing package continued to dominate sentiment.

An array of recommendations helped individual shares. Paul Slattery, of Kleinwort Benson, lifted Compass, the contract caterer, 16p to 336p. The shares had underperformed on fears of a big takeover - which materialised in the shape of Canteen Corporation of America. 'The response to the acquisition has been too negative,' he said.

SGST gave Sears, the retailer, a helping hand. Analyst Robert Snaith expects above-average profit growth, forecasting pounds 145m this year and pounds 167.5m next. The shares put on 4.5p to 126p.

Engineer GKN rose 7p to 624p on SG Warburg support. Lloyds Bank won acclaim from UBS and, with Hoare Govett holding an investment presentation, ended 11p up at 490p.

Lloyds' 4.62 per cent interest in the Standard Chartered banking group overshadowed its shares, pushing them down 27p to 938p.

A clutch of cheerful shareholder statements had the desired effect. Biotrace jumped 17p to 152p, Hillsdown Holdings 9p to 176p, Psion 12p to 296p, Spandex 43p to 643p and Zeneca 8p to 705p.

Wellcome, up 5p to 568p, responded to US approval for a cancer treatment.

Newcomer Hamleys, placed at 185p, just managed to avoid the indignity of a first-day discount, ending at 185.5p. International Bio-Technology Trust, placed at 100p, ended at 95p with the warrants at 39p. One of Thursday's new issues, the Keller construction group, fell 4p to 128p.

Resolution of Tottenham Hotspur's relegation cliffhanger lifted the shares 6p to 93p. Euro Disney's rescue package lowered the shares 15p to 363p.

Chillington rose 5p to 52p on stake change speculation and housebuilder Regent Corporation, last year's best-performing share, fell 3p to 46p despite fine results.

Regulatory fears and the election results ravaged utilities. The generators were particularly hard hit, with National Power down 4p to 419p and PowerGen 16p to 470p.

Brown & Jackson, the struggling Poundstretcher retail chain, edged forward 0.25p to 6.75p ahead of an expected rescue package by the South African Pepkor group.

Northern Leisure, which should receive pounds 1.9m for its nursing home operation from a soon- to-be-floated company, Midland Assets, gained 5p to 50p.

A see-saw session left the FT-SE 100 index unchanged at 3,106 and the FT-SE 250 index up 0.4 to 3,771. Turnover was 657.8 million shares with 25,404 bargains. The account ends on Friday with settlement on 23 May.

Control Techniques, a Welsh maker of drive systems, rides intriguingly at its peak, 494p. The shares have made progress as the group has cashed in on the recession, winning business because its customers want its electronic controls to cut costs. The market expects profits this year to climb from pounds 9.14m to more than pounds 12m. Emerson, the US group, has 29.9 per cent.

M&W, the convenience stores group, appears to be shrugging off increasing competition from discount stores and supermarkets. The stockbroker Beeson Gregory believes the shares are a buy. It expects M&W to achieve profits of pounds 2.7m this year with pounds 3.2m next year. The group recently acquired six stores, lifting its chain to more than 120. The shares shaded 1p to 151p.