Norwich Union catches bid bug over Lloyds talk

NORWICH UNION yesterday caught the bid bug currently affecting financial stocks.

The life assurer rose 19.5p to 434.5p with over 8.3m shares traded as a rumour of a tie-up with Lloyds TSB, 29.5p higher at 889p, gripped the market.

Supporters of a Norwich-Lloyds deal claimed to have evidence to prove their story. They pointed to an article in a Swiss newspaper where the finance director Kent Atkinson was said to have expressed the bank's desire to expand through mergers or acquisitions. Apparently, he added that the UK was Lloyds' favourite hunting ground, although the US and Europe could not be ruled out. The Alpine story appeared to confirm recent mutterings by Lloyds over its ambitions to enlarge its operations and boost its products' offerings.

Norwich Union was seen as an attractive target for Lloyds' cash pile as most of its life assurance offering would fit well with the bank's current range of savings instruments. Dealers argued that this would be a good time to have a pop at Norwich as it is trading near the bottom of its recent range and has underperformed the market over the past three months. They said that a merger between Lloyds, capitalised at around pounds 46bn, and Norwich Union, with a market value of some pounds 8bn, was the most likely outcome.

The hot Norwich Union rumour, did not stop the speculation bonanza around Legal & General - another mooted Lloyds target. The insurer closed down 2.5p to 168.5p but many dealing boys still believe that something is going to happen soon. The volume figure, an impressive 29.3m, supported the theory that Lloyds, an overseas rival, or even the beleaguered Barclays, up 42p to 1,815p, could strike. The blue-logoed bank was also dragged up by rehashed talk of a merger with Royal Bank of Scotland, up 40p at 1378p.

The remaining blue-chips put in a resilient performance, thanks to a good opening by the Dow Jones and some encouraging domestic economic news. The FTSE 100 closed 60.3 higher at 6,266.7, very close to the day's peak as Wall Street shrugged off last night's decision by the Fed to move to an interest-rate tightening bias. The index was also helped by news that the Bank of England's decision to leave rates unchanged earlier this month came after a closer-than-expected 5-4 split. The revelation boosted hopes of a near-term rate cut despite bearish unemployment numbers.

The smaller indices had a mixed day with the midcap ending a mere 13.2 higher to 5,719.9 and the Small Cap falling 1.3 to 2555.6.

Movements in the blue-chips were dictated by results and bid talk. Carlton Communications displayed a bit of both. The stock soared 32.5p to 542.5p after Credit Lyonnais said "buy" ahead of next week's interims. The broker slapped on a 610p target and said Carlton was oversold in the wake of the BSkyB's digital give-away. Rumours of a tie-up with OnDigital partner Granada, up 43p at 1,266p, also did the rounds.

EMI was on song, rising 24.75p to 475.25p. US buyers piled before next week's results even though the figures should contain few surprises. Ancient rumours of a takeover by a US company such as Time Warner or Disney, or German media giant Bertelsmann, resurfaced.

Reckitt & Colman, another takeover favourite, was in demand. The household goods maker rose 8.5p to 724.5p despite warning on first half sales.

Dealers said the statement was expected and said the future looks brighter. The imminent appointment of a new chief executive also helped, as did recurring talk of a strike by a foreign rival or Unilever, down 7.5p to 556.75p. But, the Anglo-Dutch giant could go for the US beauty firm Revlon, also being eyed by its American rival Johnson & Johnson.

Stellar figures from BT pushed shares 48p up to 1,096p. A boom in Internet and mobile phones was behind a sharp rise in profits and the news set the rest of the sector ringing. Energis shot up 93p to 1,727p ahead of results and amid talk that National Grid will sell some more stock, while Vodafone went 42p up to 1,222p as ABN Amro said it is better than BT.

Cadbury Schweppes swirled 22p higher at 840p on growing hopes of regulatory clearance of its mega-deal with Coca-Cola. Sainsbury bagged a 7.75p rise to 410.5p as Morgan Stanley targeted 450p and talk of a family-stake sale persisted.

Diageo had a bad day, sliding 21.5p to 683p. The Chancellor's refusal to push the pound down and a switch into the Buffett-mad Allied Domecq, up 4.5 at 560p, were blamed. Developments on the sale of Allied's pubs to Whitbread, 4p higher at 1,033p are due soon.

Potential counterbidder Bass fizzed 9.5p lower to 899.5p amid fears that today's interims will be poor. The perennial struggler Greenalls nudged 0.5p up to 341.5p as another set of dismal figures fuelled takeover rumours. Bass, Whitbread, Scottish & Newcastle, 12.5p better at 720.5p and South African Breweries, up 1.5p at 504.5p, could be the predators. Rentokil, still suffering from the recent profit warning, fell 8.5p to a 12-month low of 259.75p. Shell shed 9.5p to 435p as the oil price fell. There is some vague talk that it might go for BG, down 2.75p to 361.5p.

Among the midcappers, the packaging group REXAM, one of the market's great underperformers, soared 27p to 252.5p after predicting a "useful" rise in 1999 earnings.

Rival Arjo Wiggins rose 10.5p in sympathy. An upbeat agm lifted business services firm Bunzl 19.5p higher to 282p. Its sector companion Capita put on 26.5p to 576.5p.

Logica, the computer group, jumped 40.5p to 603.5p after being shortlisted to provide the kit to run the electricity market.

Condom-maker London International, merging with Seton Scholl, slipped 4.5p to 188p, although a counterbid from the US should be close. JJB Sports was hit by profit-taking and fell 22.5p to 355p, while the BhS group Storehouse crashed 6p to 131.5p on jitters over today's numbers.

The builder YJ Lovell rose 3.25p to 16p. After the close, it admitted that it is to sell a large part of the group. The computer specialist Network Technologies logged on a 6p rise to 35p after a distribution deal with the US giant Imation.

The detergents-maker Mc Bride flushed 8.5p higher to 120p amid some bid talk, while the telecoms recruiter Glotel debuted with a 51.5p rise to 191.5p. Bula Resources, an Irish mining minnow, was flat at 1.25p but heavy volume suggested that further news on its overseas drilling ventures could be round the corner.

SEAQ VOLUME: 1.2 bn

SEAQ TRADES: 74,057

GILTS INDEX: 107.99 (0.00)

WESTLB PANMURE is about to publish a bearish note on the highly rated information technology sector. The broker's analysts are to advise clients to take profits across the board as the industry will be hit by a millennium-induced slowdown. Customers will postpone projects until after 2000, hitting companies such as Admiral, Sema and Logica. Panmure believes that the best buys in the sector are Misys, Filtronic and Parity.

SHAMI AHMED, the Joe Bloggs jeans entrepreneur, has bought a 3 per cent-plus stake in Reflec, an underperforming maker of glow-in-the- dark ink. Mr Ahmed is convinced that the shares could soar from the present 3.37p over the next few months. He is advising Reflec on the launch of a range of clothes featuring its reflective ink. Mr Ahmed believes that Reflec's technology should give the company a headstart over its rivals.