Market Report: Bonds put the brakes on shares' advance

The FT-SE 100 index fell 42.7 points to 3,382.6 and the FT-SE 250 index 28.8 to 4,025.5. Turnover was 630.9 million shares from 28,692 deals. The account ends on Friday with settlement on 7 March.

A THREE-DAY advance came to an abrupt halt as the stock market took the view that the signalled interest rate cut would have to be deferred at least until world bond markets settled down.

Weak US bonds, ruffled by inflationary fears, had an unsettling impact in Europe. Heavy US selling added to the tension. Even a steadier opening by US bonds failed to provide any reassurance and as the stock market closed the transatlantic performance showed signs of deteriorating again.

It was all too much for the FT-SE 100 index, off 42.7 points at 3,382.6 with heavy futures selling evident.

Although blue chips were the main casualties, the second-line FT-SE 250 index fell 28.8 to 4,025.5.

Equities were, by and large, dragged down by futures activity. Cash market selling was modest.

Until yesterday's ragged display there had been signs that shares had overcome the nervousness that had afflicted them this month. In three days the 100 index climbed 62 points.

But the lukewarm reception given to the surprise Bundesbank interest rate cut indicated that many investors remained exceedingly cautious.

The market had taken the view that this week's indications that the economic recovery was faltering would prompt another round of interest rate cuts. But the behaviour in the bond markets caused a rapid rethink.

The US rate increase has also confused the interest rate outlook, with fears of another upward movement in rates never far from the surface. A US increase would destroy hopes of any near-term reduction in rates.

The growing unease over the still-increasing tax burden and the recent performance of sterling were other inhibiting influences. In such an atmosphere government stocks had no choice but to weaken, suffering falls of more than a point.

The change of stance by Nicholas Knight, who as the market's super bull had enjoyed a spectacularly successful run, jolted some investors. He is now looking for a 3,500- point end to the year, down from 4,000.

But other strategists remain bullish. Salomon Brothers is expecting the index to end the year at 3,950 and NatWest Securities has repeated its prediction of 3,900.

Some of the more bullish, even if a little whiskered, stories survived the retreat. Great Universal Stores moved ahead by a further 12p to 624p as stories of a hand- back to shareholders continued to circulate.

One theory is that the group will hive off its property interests, with shareholders receiving preferential treatment. There is also talk of some of the group's pounds 1.5bn cash mountain being handed back, or another share buy-in exercise.

Media shares were again in demand as the industry shake-up continued to fascinate. Ulster TV jumped 44p to 760p and Yorkshire-Tyne Tees TV reached 351p, up 5p. Grampian 'A' advanced 21p to 300p.

Anglia improved 4p to 655p as the MAI bid escaped a reference to the Monopolies and Mergers Commission.

LWT (Holdings) was briskly traded on growing talk that the Granada bid would succeed. The shares rose 9p to 745p. Granada edged ahead 3p to 596p.

Among radio shares Chiltern jumped 35p to 203p and Southern, which has sold its 21.9 per cent in Orchard Media, a West Country radio station, improved 9p to 111p.

TI Group, the engineer, gained 5p to 420p with Barclays de Zoete Wedd talking about strong earnings growth and the 'group's perception in the market place' improving.

The securities house expects profits helped by the Dowty takeover and the ending of the recession to reach pounds 128m for last year, pounds 145m this and pounds 167m next.

Supermarkets had a dull session - J Sainsbury fell 14p to 366p. James Capel is a seller. Tesco fell 3p to 229p.

United Biscuits crumbled 3p to 349p, with Charterhouse Tilney describing the shares as 'overvalued'. The stockbroker said UB was 'one of the bigger losers in the food price war'.

Gestetner, the office equipment group, fell 8p to 181p. It raised pounds 16.2m through a placing at 180p a share. An uninspiring trading statement did the damage. Atkins, a hosiery group, slipped 16p to 139p as a result of a profit warning.

SmithKline Beecham drifted 4.5p lower to 406.5p. Year's results are due next week. Societe Generale Strauss Turnbull is looking for pounds 1.16bn, with pounds 1.28bn this year and pounds 1.40bn next.

Vosper Thorneycroft, the shipbuilder, rose 27p to 997p in a market seemingly caught short of stock. Panmure Gordon is believed to have recommended the shares to Scottish institutions.

Charles Sidney, the motor distributor, traded at 134p as BWD Rensburg, forecasting profits of pounds 2.7m and pounds 3.1m, said buy.

Bullers, the struggling giftware group undertaking a wounding reshaping, crashed 1p to just 0.25p in a flurry of small deals. The group's restructuring involves each share of 1p, in effect, reduced to 0.01p and then consolidated on a one- for-1,000 basis. The group is buying a film and television service business.

Hanson continues to reduce its links with Wassall, the conglomerate created by former Hanson executives. Lord Hanson's group was a significant backer of the fledgling Wassall when it emerged through a shell exercise. Its stake is now below 3 per cent after the sale of 2.75 million shares. Wassall fell 3p to 284p.