Banks feel the benefit of interest rate expectations

MARKET REPORT

The market moved forward tentatively yesterday, led by a general hope of further cuts soon in interest rates across Europe. The Chancellor and the Governor of the Bank of England are due to hold their monthly meeting tomorrow, but the consensus among dealers is that another reduction in UK rates is unlikely to precede a move by the Bundesbank.

Most of the hopes of lower borrowing costs were reflected in the gilts market, where longer-dated issues advanced by around half a point.

Fresh UK economic data showing the lowest rate of inflation for 18 months in input prices and lower factory gate price rises helped to bolster the belief that interest rates would soon fall.

Leading shares traded in positive territory throughout the session, although prices started to retreat towards the close due to a lacklustre opening on Wall Street, where many traders stayed at home, taking advantage of Martin Luther King Day.

The FT-SE 100 closed 5.4 points higher at 3,662.7, after having reached 3,668.8 just before lunch. Volume trading figures were nothing much to write home about, with 589 million shares changing hands.

Bank shares were the main beneficiary of the expectations of a fresh round of cuts in interest rates. Abbey National added 7.5p to 645p, National Westminster firmed 2p to 637p, and Lloyds TSB rose 8p to 317p.

Concerns about possible strike action clipped 3p off Royal Bank of Scotland to 542p. More than 2,000 members of the Bifu union at 50 branches are voting on whether to take action over a wage dispute.

Only a handful of the leaders recorded double-digit gains. Allied Domecq almost joined the select band, finishing the session 9p higher at 543p as Credit Lyonnais Laing penned the stock's name to its selected buy list for this year.

The sale of Allied's interest in Carlsberg Tetley, the brewing venture jointly owned with Carlsberg of Denmark, is still awaited by a market anxious for the company to reduce in size and concentrate on retailing and spirits.

Bass, tipped as a possible buyer of the Tetley side of the business, advanced 13p to 716p. Whitbread, also said to be in the bidding queue and rumoured to be close to selling a couple of hundred free-of-tie pubs, firmed a penny to 676p.

Among the most noticeable fallers in the top flight was WH Smith, dropping 7p to 404p amid some worries about the results announcement next week - in particular the trading performance of the Do It All chain of DIY sheds jointly owned with Boots.

Boots last week said sales at the sheds were declining, and analysts believe there is still too much over-capacity in the market despite numerous closures in the last couple of years.

Further light will also be cast on the DIY market next week by trading updates from Sainsbury, owner of the Homebase chain, and Kingfisher, which runs the B&Q outlets.

Kingfisher lost 7p to 524p, but Sainsbury advanced 11p to 415p as investors started to warm to last week's management changes.

The retailing tiddler Clinton Cards enjoyed a good session, closing 4p better at 124p on gossip of record sales of Christmas cards.

Generally, the day's trading was kept subdued by a absence of corporate announcements. Tomkins was the only major company to release results, which were below expectations. A lack of fresh news about the technical hitches holding up Tomkins' $1bn-plus acquisition of Gates also hit the shares, which closed 10p down at 269p.

Cable & Wireless shares were out of favour despite the extraordinary shareholders meeting clearing the path for the company appoint a non- British subject to the vacant chief executive's chair. The price lost 7p to 453p, principally due to fading hopes of a break-up of C&W.

Elsewhere, Arjo Wiggins put on 3p to 185p after putting flesh on the bones of its previously announced pounds 100m restructuring programme. Almost 700 jobs will be lost right across the company's paper operations in Europe.

Forte suffered another blow in its fight for survival against Granada, and the wound was self-inflicted. Forte lost 3p to 366p, while Granada climbed 7p to 670p

Sir Rocco Forte's decision to split the roles of chairman and chief executive fell short of what investors had been expecting. He intends, all things being well, to remain as chief executive and hand over the chairman's reins to Sir Anthony Tennant, currently deputy chairman.

TAKING STOCK

rThe speculative takeover spotlight fell firmly on World of Leather yesterday. The shares climbed 6p to 70p with several dealers predicting that a bid for the group may be mounted before the end of the week. Rumoured favourites to mount a strike are DFS Furniture, headed by Graham Kirkham, and Carpetright, led by Sir Phil Harris.

rTiny BCE Holdings was one of the session's most actively traded shares as the company announced plans to sell its non-core arcades and snooker businesses, to concentrate on its computer games business. Durlacher, broker to BCE, placed an issue of 10 million new shares with several institutional clients at 20.75p. The price closed 0.25p up at 23p. Robin Jones and Barry Adams also resigned as directors, and sold 3 million shares.