Political worries slow market

TURNOVER in London's equity market accelerated appreciably yesterday, as investors initially reacted positively to the increased bid for Forte and then negatively to the re-emergence of political worries surrounding the Conservative government.

Adding to a day of intense activity was a poor early showing by Wall Street yesterday, plus a raft of rumours, some bullish and some bearish, involving leading stocks.

One of the influential US investment banks, Morgan Stanley, caused some damage to the market, advising its clients to reduce their exposure to British equities in favour of German stocks which, Morgan Stanley said, offered increased earnings growth potential.

Another US investment bank, Goldman Sachs, increased the pressure on equities, by adopting the view that 1996 will be a much more difficult year than 1995, citing increased political uncertainty. Goldman Sachs has forecast an end-1996 FTSE 100 level of 3,400.

Political worries, which have dogged the market in recent months, notably last week when Miss Emma Nicholson defected from the Tories to the Liberal Democrats, emerged in the after noon with a wire service carrying a story that a Conservative MP may not be voting with the government in the future.

There was no inkling of the turbulence to come when the market opened for business. Kicking off virtually unchanged, Footsie quickly gathered itself as the Forte/Granada increased bid was announced, and moved up to hit a new intra-day record of 3,728.6 within the first hour of trading.

Thereafter, the index drifted back before weakening significantly around lunchtime. With Wall Street opening lower, Footsie briefly lost the 3,700 level, before scrambling back to close a net 20.3 off at 3,700.3.

Second liners were equally pressured on the downside, with the FTSE Mid 250 settling a net 9.2 down at 4,070.9.

Among individual stocks, Eurotunnel fell heavily and caused ripples of unease across the banking sector, on news that the company had called a press conference for today, prompting fears that more provisions may be announced.

The increased bid from Granada for Forte, the hotels and leisure group, came as no surprise and saw Forte shares move sharply higher before slipping back later in the session. A number of influential analysts reckoned that Granada's carefully crafted bid increase may have done enough to win the day: "The pendulum may have swung Granada's way," said one.

House of Fraser was one of the casualties of the day, shocking the market with a profits warning that triggered widespread profit downgrades.