Shares slide despite takeover news

Not even news of an agreed bid for one of the UK's big four fund management groups could prevent another slide in London shares yesterday. Rather than focus on the agreed £3.1 billion sterling bid for Mercury Asset Management, which invigorated many fund management and financial services stocks, London continued to be concerned about overseas markets.

An overnight retreat on Wall Street, where the Dow Jones Industrial Average dropped 47 points, and some nasty losses in far eastern markets set off the alarm bells in UK shares which came under heavy fire as soon as the market opened.

Matters were not helped shortly into the trading session when news of a much higher than expected retail sales figure for October induced even deeper gloom for equities, raising the spectre of a further rise in interest rates in the near future.

Retail sales rose 2.8 per cent last month, well above forecasts of around 2 per cent, although economists were quick to point out that the rise owed much to a catch-up from September, when retail sales were badly affected by the funeral of Diana, Princess of Wales.

Nevertheless, the data briefly saw sterling move up on rate rise fears, adding to the stock market's woes. Exporters, whose earnings have been dented by sterling's upward trend, were especially unnerved.

The impact of the Mercury takeover was mostly felt in the market's second tier index, the FTSE 250, which managed a modest 6.9 gain to 4,630.3. The near 30 per cent jump in Mercury was accompanied by exceptionally strong performances from other fund managers such as M & G, Perpetual, Henderson and Caledonia Investments.

But the Footsie, already burdened by the impact of the news from Tokyo, Hong Kong and elsewhere in the far east, also had to contend with damaging news on the domestic front.

Safeway fell 16 per cent, after issuing a profits warning with its interim figures. The news also cut into the other big food retailers, Tesco, Asda and J. Sainsbury. Safeway accounted for 4 Footsie points, while the "big four" together were worth over 8 points.

Footsie rallied well in the afternoon, as Wall Street came in easier and then staged a good recovery. The index managed to close well clear of the 4,800 level, finishing the day a net 15.3 lower at 4,830.1. The SmallCap settled 4.4 off at 2,275.6.

Its performance would have been much worse in the absence of the Mercury bid, which triggered a sharp rise in Schroders, the merchant bank which is also one of London's "big four" investment management groups.

Takeover speculation in the rest of the leaders produced gains in many bank and insurance stocks, notably Alliance & Leicester and Royal Bank of Scotland. In addition, there were strong hints that bid activity is also imminent in the chemicals sector.

Turnover in equities picked up, reaching 806.7 million by 6 p.m.