Takeover bids dominate market

 

TWO more takeover bids and the prospect of more of the same provided a prop for much of the day in a London equity market still keeping one eye on Wall Street.

The day's takeover bids, both hostile, were FKI for Newman Tonks and Fairey for Burnfield, and worth a total of around £250 million.

Wall Street gave off more worrying signals on Monday and again at the outset of trading yesterday, with the Dow Jones Industrial Average losing its grip on the 6,300 level.

Driving the US market down on Monday was news that Morgan Stanley, one of the most powerful US investment banks, had chopped the equity weighting in its global model portfolio from 74 per cent to 56 per cent and upped cash from zero to 15 per cent.

And there was an element of unease in the US as the Federal Reserve's Open Market Committee met to consider US monetary policy. Dealers said they expected the Fed to keep interest rates on hold, but there were rumblings around the market that the Fed might spring a surprise on the markets and edge rates higher.

The US bond market was also worryingly weak for the second consecutive session, the long bond sliding around three-quarters of a point shortly after the opening yesterday, after a similar fall on Monday. A 9.2 per cent jump in US housing starts in November was behind yesterday's retreat.

British stocks failed to sustain a mid-morning rally that almost wiped out an early 20-point fall on the FTSE 100, with the index subsequently falling away and closing a net 14.2 down at 3,979.6.

The selling pressure which made its presence felt in the leaders did not spill over into the second-line and smaller stocks. The FTSE Mid-250 index settled only 7.2 easier at 4,364.0 and the SmallCap finished a mere 0.3 off at 2,131.7.

Gilts, burdened by the weakness of US Treasury bonds, could give no help to the equity market, with the 10- to 20-year gilts closing around 11 to 17 ticks lower on the day. A November public sector borrowing requirement of £2.61 billion came in around the middle of forecasts and had little impact on sentiment.

One of the features of the session was the upturn in activity: turnover at the 6 p.m. count came out at 888.7 million shares, well above recent daily levels. Non-FTSE 100 stocks accounted for 56 per cent of overall business in the market.

Another feature was a burst of activity in British Steel, where a number of large blocks of shares were traded, apparently by the same market-maker. Trading in Steel shares accounted for more than 5 per cent of the market total.

A share buy-back operation set in train by Severn Trent and carried out by HSBC James Capel, the company's broker and UBS, lifted Severn shares, which figured prominently in the Footsie performance league.