London market

FT-SE 1

STOCKS are rising, led by Lloyds TSB and other banks, on hopes that interest rates will be cut further, encouraging companies and individuals to borrow more money. Bonds are expected to be little changed as investors debate whether the cut will come before the end of the year.

"There may be an interest-rate cut next month," said Peter Hewitt, head of investment research at Murray Johnstone, "and I'm sure there'll be interest rate cuts in the future." He said that if he had new money to invest, he would buy Abbey National, Barclays and Lloyds.

"A December rate cut is still an open question," said Adam Chester, a Treasury economist at Halifax. "This week's economic data won't really add to the debate," so bonds aren't likely to move much."

The only economic reports are the trade balance on Wednesday and a CBI survey of industrial trends on Thursday.

Last week the FT-SE 100 Index rose 4.65 per cent to 5717.5, its highest level since 4 August. Bonds fell for the last two days, as some investors scaled back their expectations for a rate cut next month but over the week the benchmark 9 per cent 10-year gilt rose, pushing the yield down 10 basis points on the week to 4.85 per cent.

"A December rate cut is unlikely," said Eddie Middleton at Britannia Investment Management. He expects the central bank will "wait until January or February" before lowering rates again, as the most recent cut was bigger than expected.

Although rates probably won't fall again this year, investors expect rates will fall again next. Rates "could go as low as 5.5 per cent by the end of 1999", said Middleton.

Severn Trent and other utilities could be active as the UK's largest water utility will release first-half earnings on Tuesday. United Utilities and Viridian Group announced a rise in first-half earnings on Friday.

"Utilities remain in favour, as well as pharmaceuticals," said Roger Hornett, a director at SG Securities. He said he likes companies with earnings that are independent of the economy. National Power and Yorkshire Water also report results this week.

Glaxo, the world's second-largest drugmaker, led last week's gains on renewed merger speculation that Rhone-Poulenc and Hoechst, France and Germany's biggest drugmakers, may merge their drug and agrochemical businesses. Glaxo gained 5.9 per cent on the week and the FT-SE pharmaceuticals index rose 6.35 per cent to 10204.9. Copyright: IOS and Bloomberg