Market Report: Second-line stocks take centre stage

SECOND-LINE shares produced a breathtaking display, astonishing many hardened stock market traders.

With private investors continuing their stampede out of high street savings accounts and the big institutions forced to climb on the bandwagon, the supporting FT- SE 250 index climbed an incredible 135.5 points to a peak 4,148.8. At one time it was up 145.4.

The blue-chip 100 index was, by comparison, quite pedestrian. It did, however, reach a new high of 3,475.1, up 38.1.

Datastream calculated that the frenzy of activity lifted stock market values by pounds 13.8bn.

The 250 index embraces the layer of shares just below the more famous 100 index. Constituents include Airtours, Northern Foods and Great Portland Estates. NFC, the transport group, is expected to move to the 100 club after the next index committee meeting.

The supporting index was started in October 1992, shortly after the UK was forced out of the Exchange Rate Mechanism. Its opening close was 2,403. Until recent months it limped behind the main index. But it has since outperformed, hitting new peaks 20 times since the start of December.

Turnover was a remarkable 1.3 billion shares from 49,145 bargains. It was the busiest day since the market welcomed the last Budget when a revised 1.5 billion deals were recorded. Yesterday's figure could be increased. The Budget record was originally published at 1.2 billion.

Almost two-thirds of yesterday's volume occurred in second- line and fringe shares.

Institutions have been particularly active in 250 stocks; they are felt to have the greater recovery potential. Often fund managers have reduced their blue-chip holdings to buy second liners. That trend seems to be increasing with the latest surge the biggest one- day advance by the 250 shares.

Since devaluation week, the blue-chip index has climbed from 2,370.9. On Budget day it was 3,166.9.

The market is enjoying its busiest spell for years, certainly since Big Bang. In the last account turnover topped 8.5 billion. In the first three days of the present trading period it exceeded 3 billion.

The latest exuberance was encouraged by the growing conviction that interest rates will be forced lower within the next few months. Some expect the Bundesbank to increase the pressure today by lowering German rates.

The better-than-expected inflation figures and surprisingly dull December retail sales also supported the argument for lower rates. The view is that a half-point cut will occur shortly with another reduction being introduced at the time the VAT increases are imposed on domestic fuels. Gilts scored gains nudging pounds 2. The economic recovery, the market believes, remains on schedule and there is a wide expectation that shares will continue to improve. NatWest Securities this week lifted its year-end Footsie target to 3,900.

A rumoured pounds 1bn FT-SE 250 programme involving the launch of covered warrants was another bullish influence. UBS was said to be deeply involved; two other investment houses were also active. If the warrant rumours are true - and there was no confirmation from UBS - it could force shares even higher today.

But the euphoria could well prompt a string of cash calls. The troubled bathroom group Spring Ram, up 5.5p to 67p, could be the first.

Tesco was another influence. The slowdown in the pace of superstore openings and the progressive dividend pledge, plus better-than-expected Christmas trading, lifted the shares 15p to 251.5p. Other supermarkets were encouraged.

Wm Morrison, up 5.5p to 123p, was also helped by Asda takeover rumours. Asda gained 3p to 64.5p.

All sectors made progress. Property shares were strong, helped by the lower interest rate talk and positive comments from Smith New Court. Other interest rate- sensitive shares, such as stores and builders, moved ahead.

Banks were ruffled as Nomura turned cautious on Barclays, down 8p to 609p. But TSB, reflecting last week's results, rose 10p to 286p. HSBC, on the back of the Hong Kong market, advanced 29p to 976p.

Cable and Wireless improved 19p to 538p as its Hong Kong subsidiary moved ahead following the Salomon Brothers recommendation.

Financial shares ran with the market with, for example, M&G up 62p at 1,162p. Singer & Friedlander, the merchant bank, had the added help of an SG Warburg recommendation, gaining 7p to 102p.

Rolls-Royce, despite rumoured downgradings from Hoare Govett, rose 1.5p to 174p. Hoare is said to have cut from pounds 85m to pounds 75m and from pounds 120m to pounds 90m.

An analysts' meeting left Whitbread 12p stronger at 588p.

More records; the FT-SE 100 index ended 38.1 points higher at 3,475.1; the FT-SE 250 index 135.5 at 4,148.8. Turnover was 1,320 million shares from 49,145 bargains. The account ends on 28 January; settlement is on 7 February. Gilts were up by nearly pounds 2.

Action at the Savoy with four trades at around pounds 55 in the high- voting shares and the low voters gaining 150p to 980p. The board split over the new chairman could soon be resolved with Forte getting its man appointed. Forte's rumoured pounds 350m offer, with George Soros, for the upmarket Ciga hotel chain could help its campaign to create a new group, based on the Savoy.

Raine, the builder, continues to recover from last year's depression when it slashed its dividend. It may be encouraged to edge its payment higher this year although returning to the old 6p level could take some years. Profits are expected to emerge at pounds 15m in the year to end-June against pounds 10.8m with pounds 20m in sight for the following year. The shares rose 5p to 101p.

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