Market Report: Shares rally on stronger pound and New York

SHARES staged a comeback yesterday, with the FT-SE share index rallying 42.1 points to 2,488.4.

The pound's firmer performance, New York's unexpected resilience and renewed hopes of a Tory conference interest-rate cut prompted the recovery, although the deficit from Monday's crash was still more than 60 points.

The stock market remained extremely fragile and many wondered whether the revival was no more than a dead cat bounce. Trading was modest, with turnover put at 467.1 million shares.

Banks were back in the firing line with rumours swirling that Barclays may be forced to cut its dividend as profit expectations were cut back.

Credit Lyonnais Laing raised the possibility of the dividend being trimmed, whilst Yamaichi downgraded.

Ian Poulter, banking analyst at the Japanese investment house, cut his forecast for this year from pounds 453m to pounds 260m and for next from pounds 900m to pounds 485m. But he feels the dividend will be held at 21.15p a share.

Yamaichi believes the shares should be sold. They have 'run too far on the back of interest- rate cuts and supposed currency trading gains'.

Any improved operating profits will be buried by provisions, which could reach pounds 2bn this year and pounds 1.8bn next.

Yamaichi also believes shares of Lloyds Bank and Royal Bank of Scotland should be sold. The advice restrained Barclays' gain to 4p at 336p in busy trading. But Lloyds rose 13p to 435p and Royal Bank 3.5p to 152p.

While Yamaichi savaged Barclays the bank's investment offshoot, Barclays de Zoete Wedd, pushed the Standard Chartered banking group higher.

Standard gained 23p to 445p as BZW raised this year's profit forecast from pounds 210m to pounds 225m and next from pounds 325m to pounds 345m. The dividend is expected to go up to 22p, followed by 27p.

Downgradings were not confined to the banking sector. Carr Kitcat & Aitken took the shine off the motor component makers GKN and Laird Group. It left this year's GKN estimate unchanged at pounds 140m but cut next from pounds 180m to pounds 165m. Laird was cut from pounds 42m to pounds 39.5m and from pounds 46m to pounds 41m. GKN fell 1p to 369p and Laird 2p to 271p.

The engineer Babcock International dropped 10p to 30.5p. Smith New Court reduced its expectations by pounds 10m to pounds 40m for this year and by pounds 15m to pounds 40m for next. Panmure Gordon confined itself to cutting this year's forecast by pounds 8m to pounds 42m.

British Aerospace eased 4p to 131p despite investment meetings in Scotland. Bowater, the packaging group, rose 4p to 820p as analysts visited its French operations.

Rumours of a downgrade pushed Rank Organisation down 20p to 515p.

Ranks Hovis McDougall slipped 2p to 239p as it held talks with the hostile bidder Hanson, up 1p at 203p. Lucas Industries gained 6p to 92p on continuing talk of a bid from Siebe, up 2p at 337p.

Owners Abroad, the holiday group that has attracted takeover speculation, rose 6p to 77p in busy trading. After the market closed the company admitted it had received 'a tentative approach' but no offer. A continental group is thought to be behind the move.

SmithKline Beecham led drug shares higher, gaining 18p to 487p, as the US Food and Drug Administration moved to approve its anti-depressant drug, Seroxat.

Hoare Govett believes Seroxat could achieve sales of pounds 350m within a few years.

Enterprise Oil, seeking an ADR presence, edged forward 7p to 415p as Kleinwort Benson said buy, and the brewer Bass responded to positive noises from Societe Generale Strauss Turnbull, gaining 19p at 536p.

Among the small fry NMW Computers jumped 8p to 41p in busy trading. Speculators are banking on a bid from ACT Group, which has a 25.4 per cent stake. ACT took over Quotient last year.

Surrey Group, a bookmaker, held at 1.75p as 20 million shares were traded. The media group Taylor Nelson remained at 14.5p. Robert Fleming said it had sold 4.8 million shares, cutting its stake to 6.6 per cent.

Shares recovered some lost ground yesterday. The FT-SE share index closed at its best level of the day, up 42.1 points at 2,488.4. The FT 30 share index rose 34.8 to 1,814.2. Turnover was modest, just 467.1 million shares from 20,648 bargains. Government stocks ended narrowly mixed after a roller-coaster session.

Haemocell, the USM-traded drugs group, was the day's best performer, soaring 81p to 176p. The US Food and Drug Administration is about to approve its System 350 blood filtration machine. Chief executive David Mathen described the development as a 'quantum leap'. Haemocell's turnover is expected to jump dramatically, and losses to become profits.

Navan Resources shaded to 24p yesterday. The Irish explorer is continuing to forge mining links with Eastern Europe. It is hoping to raise Ir pounds 3.85m through an open offer and placing of convertible loan notes with warrants. Most of the cash will be used to buy 50 per cent interests (with board control) in four mining operations and a greenfield project.

Expect Capita Group, the management services consultants, to announce yet another takeover soon. It has a West Midlands building services group in its sights at a likely cost of more than pounds 500,000. On Monday it paid pounds 1.23m for a local authorities debt collection business. Year's profits are expected to emerge at pounds 4.4m with pounds 5.4m next year. The shares held at 334p.

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