Market Report: Rate fears and US figures wipe out modest recovery

THE spectre of further interest rate increases returned to haunt the stock market.

An early gain was snuffed out by higher-than-expected public sector borrowing requirement figures but it was US industrial production data that really did the damage. As New York slumped the already stumbling FT-SE 100 index fell sharply, closing 47.6 points down at 3,065.1, its lowest for more than two months.

On Thursday shares managed to end a seven-day run of retreats. But the modest recovery achieved was obliterated, with the index recording a 176.4 decline since the present bear run started last week.

Unease in the gilts market stretched already taut nerves. With US and European bonds in ragged retreat, government stocks suffered reverses of nearly pounds 13 4 and the announcement of an auction of conventional stock, dated 2004-2006, did little to steady the market. Details are due on Tuesday.

Once again equity trading was not heavy. Indeed, one of the features of the current ragged run is the absence of determined, substantial selling.

Butsentiment has been undermined. After the August advance, September - rarely a good month - has been more uncomfortable than usual.

Monday's interest rate increase, which many said would remove uncertainty and steady the market, has been followed by a succession of far from encouraging pointers.

ThePSBR and then the US industrial figures demonstrated the fragility of the market, which is now desperately in need of a confidence booster.

The latest round of company news lacked any inspirational qualities. Betterware, the direct selling group, continued under pressure, falling 23p to 50p. The latest setback stemmed from a warning interim profits would be sharply lower.

Midland Independent Newspapers lost 14p to 140p, its March placing price, as a cautious statement accompanied figures.

Storms have devastated the Windward Islands banana crop, enough to send Geest down 30p to 211p.

Kingfisher fell 15p to 487p, awaiting board changes at its B&Q off-shoot; Barclays de Zoete Wedd repeated its sell advice. British Airways was lowered 6.5p to 382.5p on worries of a transatlantic price war and the engineer APV fell another 8p to 75p on its halved dividend.

The newcomer Independent Parts, a vehicle components group, ignored the gloom. Placed at 112p the shares closed at 120p. Owners Abroad, to become First Choice Holidays, rose 7p to 119p on higher summer bookings.

Tadpole Technology was firm at 387p. Albert E Sharp describes the shares as a 'strong buy'. The analyst James Warhurst says the signalled US contract 'is both large and significant'. He expects a pounds 1.35m loss this year, a bounce to pounds 10m profits next and then pounds 20m.

More share buybacks helped electricity shares survive the worst of the slump and waters, although losing some of their early rise, clung to modest gains.

Ramco Oil Services was the day's star performer - up 37p at 259p. An announcement about its Azerbaijan project is expected early next week.

It is suggested Ramco's share of the operation, which also includes oil giants like British Petroleum, Amoco and Pennzoil, could transform the group. Pennzoil is carrying Ramco's share of the development costs.

Falcon, a valves and pipes distributor, ended 4p higher at 139p. The shares touched 148p before the company said it knew of no reason for their strength.

Wakebourne, the revamped computer group that used to be called Maddox, was firm at 101p. Interim figures are due on Monday; about pounds 1.1m is expected.

British Biotechnology, strong lately on encouraging treatment reports, rose 15p to 520p on Lehman Brothers support. HunterPrint collapsed 3p to 3.5p as talks that could have led to a bid from Quebecor of Canada were called off. The shares were nudging 20p last month. The struggling printer added to the anxiety by saying that although it was trading in line with budget it was experiencing pressure from creditors because of uncertainty 'surrounding the future ownership of the company'.

Embassy Property held at 0.75p. After hours it was disclosed that John I Jacobs, a shipping group, had said it was thinking of bidding.

Michael Kingshott is chairman of Embassy, which has strong Far Eastern links, and managing director of Jacobs, where he moved in recently with a 20 per cent interest.

Jacobs, which had been expected to make a property move, shaded to 47p.

Dealings are due to start on the 4.2 share market on Monday in Westcot Homes, a business expansion scheme company that lets residential properties on assured tenancies. The stockbroker Teather & Greenwood is behind the flotation. Westcot is run by Euan Wallace and has assets of 132p a share, with profits running at pounds 250,000. An opening price of about 110p is expected.

An unidentified buyer has acquired 93 per cent of the debentures of Gartmore American, which could cost shareholders pounds 5.6m when the investment trust is wound up in March. By calling the winding-up meeting this week GA hopes to beat the debenture ploy, based on the market price of the debentures, now an inflated 174p, against an expected 114p. The shares are 35p.