Second-liners prosper as BT news hits Footsie

Blue-chip stocks went into retreat again yesterday as a combination of economic worries and mixed corporate news sent the FTSE 100 index lower.

But the sell-off did not extend to the medium-sized and smaller stocks, where the FTSE 250 and SmallCap indices chalked up another set of closing records.

There were still signs that Monday's announcement of a mega-merger between AOL and Time Warner was at the forefront of investors' minds. Media groups were the best four performers in the FTSE 100 index while technology stocks, which suffered badly last week, continued their rebound. The FTSE 100 closed at 6,518.9, down 88.8 on the day.

There was another technology link-up to celebrate yesterday with a deal between Vodafone AirTouch and Psion, the palm-top computer company, prompting shares in the latter to climb 13 per cent.

But the market was less enthusiastic about BT's offer for Esat Telecom. Shares in BT, one of the market's heavyweight stocks, fell nearly 3 per cent, dragging down the FTSE 100 in early trading.

There were also signs of investor nervousness ahead of today's meeting of the Bank of England's monetary policy committee, which is expected to lead to a quarter-point increase in interest rates.

On the international front, a higher-than-expected pay claim from the German engineering workers union IG Metall worried European bond markets; gilts were down more than half a point on the day.

The latest domestic economic data came in the form of figures from the British Retail Consortium, showing that the value of retail sales was up 2.9 per cent on a like-for-like basis in December, although competition was holding down prices.

That latter point was emphasised by Kingfisher, Woolworths, B&Q and Comet group, which said that margins continued to be under pressure. Kingfisher shares slumped 14 per cent, easily the worst performance in the FTSE 100.

According to IBES, the information company, British companies that have reported earnings in 1999 have so far shown annual growth of 2.9 per cent, which is above expectations.

The sectors which have done best relative to consensus are basic industries, consumer durables and finance; the worst performers are capital goods and, rather surprisingly, technology. However, technology companies have still produced double-digit earnings growth.

Volume yesterday continued to run at the enhanced levels of the last three months. By 6 p.m., 1.8 billion shares had been dealt.

Vodafone AirTouch continued to be the busiest share, but there was plenty of activity in the penny stocks such as Pacific Media as well.