Profit warnings hit equities

Increasing nervousness about the deterioration of the situation in Iraq and another worrying series of profits warnings, brought renewed pressure on London's equity market yesterday. Although there were few signs of substantial selling, the FTSE 100 index was marked down for much of the day, only lifting when Wall Street delivered an encouraging rally.

"Given the international problems and domestic earnings worries, it is difficult to see the market making much progress from here in the short term, although a rate cut in the US next week, however unlikely, would no doubt entice the buyers back into global markets," said one salesman.

Apart from the profit warnings, which were confined to the smaller stocks, much of the news from blue-chip companies delivered yesterday was viewed as positive. But some dealers began to get agitated at the trend in currency markets, where sterling moved higher again yesterday, especially against the deutschmark, with the Bank of England's trade-weighted index finishing 0.4 up at 100.8.

Footsie kicked off the session under light pressure and gradually declined during the morning to hit a session low of 5,402.4, before picking up to finish the day 27.8 down at 5,449.0.

Early trading was given no help by Wednesday's poor performance from Wall Street, which dipped 40 points, or by a disappointing trend on Asian markets where Hong Kong fell 2 per cent and Tokyo 2.5 per cent. Unlike the leaders, the second-line stocks finished only a shade off the day's lowest levels, burdened not only by the threat of earnings downgrades, but also by the currency factor.

The FTSE 250 settled 27.6 down at 4,845.2 after sliding 33.5 at one point. The small-cap stocks were broadly lower, but the FTSE SmallCap index held up well in the face of all the profit warnings, closing 3.0 down at 2,065.7.

Activity in London never looked like moving out of first gear, as the institutions preferred to stand on the sidelines, awaiting developments in the Middle East. Fears that a US strike against Iraq is increasingly likely unsettled most areas of the market but brought much needed relief to a recently beleaguered oil sector, as crude oil prices moved ahead.

Shell, outpaced recently by BP, was among the best performers in the FTSE 100, while Enterprise and Lasmo were prominent in the FTSE 250 stocks.

Of the stocks reporting yesterday, Ladbroke pleased the market with an upbeat third-quarter trading statement. The results were positive despite the flop of its Easy Play National Lottery game and tough conditions in the hotel market.

The company also said its plans to dispose of the Coral betting shop chain are well underway, with industry sources expecting the group to draw up a shortlist of bidders this week.

Meanwhile, profit-takers moved in on BT despite top-of-the-range numbers from the leading telecoms group.

There was evidence that more takeover action might be returning to the market. A hard bid emerged for Heritage Bathrooms, and Wassall was unveiled as the buyer of a large lump of stock in BICC, the cables and heavy electricals group.

Computer-related stocks were weighed down by the worries over a slowdown in the domestic economy. Misys ended 7.8 per cent lower and was the worst performer in the FTSE-100. Elsewhere in the sector, Sema, slipped 4 per cent, CMG lost 4.7 per cent and Micro Focus tumbled 10 per cent. Turnover at 6 p.m. reached 814.3 million shares, with non-FTSE 100 stocks accounting for 53 per cent of that figure. Meanwhile, government bonds closed higher helped by stronger bond markets elsewhere and the weak FTSE. The rally petered out just shy of the week's 115.25 high, with an empty domestic diary contributing to low volumes again. There is little on the domestic agenda today. The only focus will be a Debt Management Office announcement of the result of its gilt conversion offer.