Lang throws a spanner in the works

A LONDON stock market looking well set for a strong recovery after two sessions of losses was stopped in its tracks yesterday by shock news that the proposed bids by the two English power generators, National Power and PowerGen for Southern and Midlands Electricity had been blocked.

The market had been expecting a statement from Secretary of State for Trade and Industry Mr Lang giving the go ahead for the bids so the news sent a series of severe shock waves careering through the utilities areas of the market which fell sharply.

Dealers said many of the big market making firms and international arbitrageurs, who have been running big positions in the relevant stocks, had suffered heavy losses as shares in the generators and regional electrical companies (RECs) plummeted.

Sentiment in London was also badly affected by a weak opening to Wall Street, which fell over 20 points shortly after trading started and was down over 40 points not long after dealings stopped in London.

Generators/recs occupied the top four placings in the FTSE 100 worst performers table and the top five rankings in the FTSE Mid 250 league. Falls ranging from 4.8 per cent in Scottish Power to almost 9 per cent in Southern Electricity cost the FTSE 100 index 6.4. The index ended the session at the day's lowest level, 3,817.6, down a net 15.4.

The Mid 250, bolstered by a surprise bid by the Conrad Black owned Hollinger group for the 36 per cent minority of The Telegraph, which produced a 20 per cent jump in Telegraph shares, managed a minor gain, closing 4.6 up at 4,544.7, although a far cry from the 18 points plus gain ft recorded earlier in the session.

Traders, still shaken by the stunning turnaround in the utilities sectors, said the sectors could fall further in the aftermath of the Lang decision, but insisted the news would not prevent more overseas bids in the RECs. One specialist insisted "there will be no independent recs by September."

The electricity story totally deflated an otherwise recovering stock market. An uneasy opening, triggered by worries about the prospect of a big rights issue and the auction of £3 billion worth of 10 year gilts, saw the Footsie slip away to drift into neutral territory within minutes of the opening before staging a useful recovery towards mid morning.

The recovery came after the gilts auction was covered some 2.65 times, news that prompted a flurry of buying in equities.

And traders once again picked up the scent of impending take over activity, especially in the utilities, but also around the various sectors. The day's hottest bid stories again included Ladbroke, the gaming to hotels group whose shares raced up to top the 200p level amid exceptionally heavy trading.

Hilton International, Scottish & Newcastle and Bass remain favourites to break up Ladbroke.

Another bid story gaining momentum over the day was Lucas Industries, whose chief executive, Mr George Simpson, is about to move over to head up GEC.

Turnover at 6 p.m. reached 970.3 million shares. Customer activity on Tuesday was valued at £2.1 billion.