Market Report: mmO2 plummets as KPN talks down bid hopes

Stock markets across the globe had a terrible start to the week yesterday. Shares in mmO2 shares took a battering as the prospects of the bid for the mobile phone group faded after comments from the chief executive of KPN. In February, the Dutch telecom carrier attempted to beef up its mobile phone business by acquiring mmO2 but was turned down by the board of the UK group.

But Ad Scheepbouwer, KPN's chief executive, seemed to rule out a return bid for mmO2. In a conference call following results from the telecom group, he told analysts that he saw no merger and acquisition opportunities that suit KPN and reiterated his intention to give back to shareholders any excess cash on the company's balance sheet.

For months traders have been betting on a takeover of mmO2 and Mr Scheepbouwer's comments sent them clamouring for the exit, leaving the stock as the worst performer in the FTSE 100 index, down 5.75p to 92.5p. The main reason for KPN's interest in the UK mobile phone operator was its hope to merge the group with its German unit E-Plus, which is struggling to compete with the market leaders Vodafone and T-Mobile, owned by Deutsche Telekom.

Meanwhile, the wider telecoms sector was also in retreat. Vodafone gave up 4.25p to 135.25p, BT Group dropped 2.75p to 173.25p and Cable & Wireless lost 4.75p to 116p. The FTSE 100 dropped 103.2 points to 4,395.2 as Wall Street registered a near 200-point fall at the start of trading. The Dow Jones fell below the 10,000 level for the first time this year amid growing fears of rising US interest rates.

Over the past two months the focus of the stock market has rapidly changed. As recently as the start of March, many investors fretted about the lack of jobs growth being generated by the recovering American economy, believingthat the Federal Reserve would not raise interest rates for the foreseeable future. Since then, job creation in the world's largest economy has soared and now investors are wondering whether the recovery is too strong and fear the US Fed is going to have to slam the brakes on by raising rates sharply.

Deutsche Bank, in a five-page stock market strategy review yesterday, warned that equity markets are likely to struggle in the near-term on fears of a possible slowdown in 2005. "This suggests that cash may be the asset class of choice in the immediate future. However, investors should look to buy shares on any significant weakness," the German broker advised.

There were just two risers in London's blue-chip index. Imperial Tobacco put on 5p to 1,237p, while Bunzl gained 0.5p to 464p after announcing the acquisition of Groupe Pierre Le Goff, a cleaning products distributor, for £220m. Regus dropped 5.5p to 66.5p on vague talk the office space group may be mulling an acquisition in the US. An obvious target for Regus would be HQ Global Workplaces but whether it has the firepower for such a move is far from certain.

Lower down the pecking order, Regal Petroleum gained 5p to 388p on talk the explorer will soon announce the acquisition of new acreage in Egypt. Those buying into the stock were also very excited about the company's gas prospects in Romania. Regal is said to have bought them at rock bottom prices and traders reckon the assets could prove to be a huge success for the company, which earlier this year struck it lucky with a massive oil find in Greece.

Securitas AB said that it now had control of 51 per cent of Bell Group, down 0.5p to 173p, thanks to some impressive share purchases by its broker HSBC Securities. The Swedish security specialist only announced its 175p-a-share bid for Bell last Thursday and many in the Square Mile were surprised that HSBC had managed to win control of the company for Securitas so quickly.

Better-than-expected full-year figures from Griffin Mining helped shares in the China-focused zinc specialist 2.25p higher to 27.25p. Meanwhile, the recruitment group Robert Walters gave up 6.5p to 111.5p on worries about trading at its French division. Freeport retreated 7p to 338.5p as brokers struggled to clear a large seller from the market.

And finally, something of a buzz has surrounded JKX Oil & Gas ever since the explorer announced last week that a company called Benam Holdings has upped its stake in JKX. Benam subscribed for 2.25 million new shares in JKX at 81p, leaving it with a near 2 per cent holding in the company, and prompting talk that Benam was merely a holding company owned by the utility giant Centrica. However, a source close to Benam denied this was the case. He said that Benam was a private company, owned by a number of individuals and registered in Cyprus. Benam supports JKX's Ukraine operations, helping the company to export gas from the former Soviet country.