Interest-rate cuts send stock market into record territory

THE Dublin stock market ventured into record territory yesterday after the Central Bank shaved interest rates by a quarter of 1 per cent. It was given extra impetus by a strong performance in London, which was buoyed by renewed bid talk and widespread stock shortages.

Both markets closed at record highs, with the ISEQ ending at over 2510, up by more than 20 points. There was strong interest in financial stocks, particularly Bank of Ireland in the wake of this week's announcement that it is to buy the Bristol and West Building Society for £600 million.

The Government gilt market has also had a strong run this week on the back of renewed optimism from international investors about EMU and the likely participation of peripheral states such as Ireland either in the single currency or a revived ERM. The interest rate on the benchmark five-year Irish gilt fell this week from 6.59 per cent to 6.30 per cent, while 10-year yields fell from 7.77 per cent to 7.49 per cent.

Last night NCB stockbrokers pointed to the effective de-coupling of long-term Irish interest rates from British rate levels this week. Irish bond rates are now more than half a point below British levels, the biggest gap since the end of the narrow ERM band in mid-1993. There was strong overseas demand for Irish gilts during the week.

Elsewhere in Europe, the French and German bourses were lacklustre, although both closed slightly higher.

London stocks, encouraged by the expiry of index options and continuing strength in bonds, pushed well into record territory early in the day.

This combined with a stronger Wall Street in early trading - the Dow rose 20 to 5571 in late-morning US trade - gave London the fillip it needed for the main FTSE index to close up 36.4 at a record 3857.1. The previous closing peak was 3,825.3 set on April 16th. However, Wall Street fell back in later trading.

Dealers in London said takeover speculation was a major driving force behind London's performance. The list of candidates includes Lucas, Pearson, Thorn EMI, Scottish Power and London Electricity.

They said a further burst of bid speculation, combined with firm bonds, could send stocks higher still next week, although some said a period of consolidation was due.

The more cautious commented that it might be difficult to sustain current levels. A senior trader at a leading broker said: "We do need a big bid to be able to go higher from here. There are a lot of stock shortages and that has helped the gains.

"But when we get to the stage where people are talking about Shell taking over British Gas then it begins to look as if the market is starting to feed on itself," he added.

Meanwhile the dollar ended soft against the deutschmark and yen as traders digested the impact of the Bundesbank's interest-rate cut on Thursday and eyed the weekend meeting of finance ministers from the Group of Seven leading industrialised nations.

The dollar was at 1.5065 Dmarks and 106.99 yen in late European trading. The pound closed at $1.568 and 1O3.35p sterling, up marginally against the BUS currency and off slightly against the British unit.