Market Report: Smaller companies force about-turn by blue chips

SECOND and third liners ruled the stock market roost. In often heavy trading many stormed ahead, even inspiring a remarkable about-turn by the blue chip index.

The FT-SE 100 index swung from a 23.9-point loss to a 28.5 gain, closing 23.8 higher at 3,403. And the supporting FT-SE 250 index enjoyed another record run, ending up 28.6 at 3,849. It was a remarkable topsy-turvy session that confounded many hardened professionals.

Turnover topped 1 billion shares, with nearly two thirds of the trading in second and third line stocks.

The day's poor start was engineered by the overnight fall in Hong Kong and disappointing figures from Dixons, the electrical retailer. The Hong Kong setback sent the HSBC banking group reeling 60p to 905p and Cable and Wireless down 18p to 504p.

Communication shares had another frenzied session as takeover speculation reached fever pitch.

In the excitable atmosphere a story that Reed International was about to mount a bid for the Reuters information group even took hold. Although roundly dismissed by traders, there was enough action to lift Reuters 38p to 1,823p and shade Reed 10p to 894p.

Reuters has slipped from the 1,880p peak hit in Christmas week, giving rise to the suggestion that stale bulls were behind the yarn.

But there was no doubting the intensity of interest in other media shares. The breakdown of the triple alliance talks sent LWT (Holdings) up 22p to 648p with some taking the view that bidder Granada, with a little sweetening of the terms, would have little difficulty winning the battle.

Anglia TV rose 14p to 455p but Yorkshire-Tyne Tees was at one time down 42p to 150p on the termination of the LWT talks. Thoughts of further bid action produced a close of 178p.

LWT could, it is felt, mount a hostile bid, and if Yorkshire is still independent when the cross-ownership controls are lifted then the Pearson banking and publishing group may pounce. LWT and Pearson each have 14 per cent interests in Yorkshire.

Granada gained 14p to 553p and Thorn EMI 33p to 1,044p.

Oils were buoyed by a firmer crude price. British Petroleum flared 16p to 371p; and Shell 22p to 741p.

But the Dixons performance subdued retailers although more reassuring sales comments from Boots, down 5p at 582p, soothed frayed nerves. Dixons crashed 43p to 240p.

The Dixons experience rattled little Rhino Group, which has based its fortunes on computer and video games. The shares fell 4p to 53p. But a statement that it had enjoyed 'strong' Christmas trading sent any bears running for cover as the shares jumped to 58p, closing at 55p. Seaq put turnover at 1.7 million.

Wm Morrison, the supermarket chain, helped food retailers with a cheerful Christmas trading statement. Argyll rose 15p to 299p, J Sainsbury 13p to 461p and Tesco 9.5p to 231.5p. Morrison ticked up 4p to 118p.

Life assurances made headway with NatWest Securities providing the support. The securities house singled out Britannic, up 11p to 450p, Legal & General, 21p at 532p, and London & Manchester, 8p at 388p.

Among composites Sun Alliance jumped 19p to 411p on the impression it is in takeover talks with Union des Assurances de Paris, the French state-owned insurer, owning 50 per cent of the TransAtlantic insurance group which has a small stake in Sun Alliance.

UAP is believed to be negotiating to buy a UK insurer but it is not in talks with Sun.

Fisons, the ailing pharmaceutical group, continued to attract takeover attention. There was a queue of would-be bidders thinking of offering 182p a share, it was alleged. Zeneca remained the favourite but Canadian and even Italian candidates were put forward. The shares rose 7p to 146p.

Glaxo Holdings remained in the dumps, with the Italian drug cutbacks and the Goldman Sachs caution doing the damage. Wellcome, up 17p at 682p, was thought to enjoy Salomon Brothers' support.

The hard-pressed London International Group, still reflecting the arrival of Oakmark, an American fund, added 9p to go to 156p.

Invesco, the fund management group, was little changed at 205p. Lehman Brothers, the US house, placed a line of 10.2 million shares, mostly with American investors.

Food manufacturers were firm, largely on the back of the London Wall Equities recommendations.

Utilities had a difficult session as their yield attraction faded and investors switched to sectors likely to benefit from any economic recovery.

Newcomer Rackwood, an open cast miner, reached 46p from a 40p placing.

Hepworth, the building materials group, continued to benefit from a bond redemption, holding an 18p gain to 465p.

In busy trading the FT-SE 100 index closed 23.8 points higher at 3,403 and the FT-SE 250 index stretched 28.6 to a 3,849 peak. Turnover was 1,028.9 million shares from 38,415 bargains. The account ends on 14 January with settlement on 24 January.

Donelon Tyson rose 3p to 21p as the market awoke again to the surprising presence of Morgan Stanley, the giant US investment house, on the share register of this modest, little-researched civil engineer. Last week Morgan said it had doubled its stake to 10 per cent. There is talk that it has made further purchases. DT's profits are likely to be lower than last year's pounds 1.6m.

Mitie, the property maintenance group, has won its biggest contract yet, a three-year pounds 5m cleaning deal with British Aerospace. It recently picked up six other contracts, worth pounds 2.25m, and landed one with the Prudential Corporation for building maintenance. Last year Mitie made profits of pounds 2.4m. About pounds 3m is expected this year. The shares are 286p.