A SHORT LIVED burst of fresh bid speculation, focused mainly on Lucas, Pearson and a handful of smaller stocks, promoted a brief renewal of the "feel good factor" throughout the British stock market. The market had already factored in the Pounds 1.73 billion sterling bid for Midlands Electricity from two US utilities.
But any comfortable feelings about the market were subsequently erased by another dismal showing by Wall Street, which fell over 30 points shortly after US markets opened for business.
Wall Street took its lead from a poor performance by Treasury bonds which came under sustained selling pressure ahead of a series of substantial bond auctions in the US starting yesterday with 519 billion worth of three year bonds and continuing with auctions of 10 year and 30 year notes.
British gilts were unsettled, but not too dismayed by the prospect of a sell off in US bond the 10 year gilt ended the session unchanged on balance, having relinquished earlier gains of around four to five ticks.
By the close, the FTSE 100 index was left nursing a 28.6 fall at 3,723.0, with dealers pointing out that much of the damage to the leading index was caused by big losses in stocks carrying heavy weightings in the index, including BP, British Gas, Glaxo and the two big insurance companies, Royal and Sun Alliance, which announced their big Pounds 5.4 billion merger last Friday.
There was much better news for investors in the second liners, where the FTSE Mid 250 index shrugged off the US inspired worries of the leaders and responded instead to a renewed burst of takeover speculation. The Mid 250 settled a net 10.2 ahead at 4,525.5.
Senior dealers at a number of the leading broking houses across the City expressed their concerns about the British market's short term prospects and were particularly worried about the US bond market.
There were plenty of bullish stories in the market, however. Lucas, the motor components group, shot up to top the Mid 2 SC performance league after the company announced it was involved in discussions with Varity of the US about potential links between the two groups.
Pearson was another stock to attract takeover speculation, as were a handful of the second liners and smaller stocks. BP's big fall was attributed to Wall Street's weakness, rather than to the first quarter figures which most analysts said were in line with forecasts.
Turnover at the 6 p.m. reading came out at a reasonable 694.3 million shares, but was heavily weighted in favour of the non FTSE 100 issues which accounted for over 60 per cent of the market total.
The value of customer, or retail business, transacted in the market last Friday reached Pounds 2.5 billion.
