London Market: Declining stocks look set to rebound

STRONG earnings from Abbey National and Lloyds TSB may lead to a rebound in stocks this week after six days of decline. Glaxo Wellcome, the world's fourth-largest drug company, is likely to gain when it reports first-half results on Thursday.

"We're looking forward to some pretty strong results," said Ashley Willing, manager at Gartmore Capital Management.

Freeserve, the internet service provider, will probably surge on Monday when its shares trade for the first time on the London and Nasdaq stock markets. The FT-SE 100 index Friday dropped 90.4 points to 6,207.4 for a 5.4 per cent slump last week - its worst weekly drop since October 1998.

Banks were among the leading decliners, tumbling 7.1 per cent in six days on the concern that interest rates will not fall any more and may rise. That followed a report last week showing that the Bank of England's monetary policy committee unanimously voted to keep rates unchanged at 5 per cent and even discussed raising them.

Bank gains are likely to be capped if earnings do not match expectations. Lloyds TSB, Britain's most profitable bank, is expected to post a 32 per cent rise in first-half earnings per share when it reports on Friday. Abbey National, the second biggest mortgage lender, is expected to register an 18 per cent increase. Halifax, the largest mortgage lender, is expected to post earnings per share growth of 2 per cent on Tuesday; Woolwich reports on Thursday. The single-digit rise expected in first-half profits comes as the difference between lending and deposit rates narrows.

Glaxo Wellcome, the UK's biggest drug maker, may rebound after Thursday if first-half profit matches expectations, rising 10 per cent. Glaxo shares have fallen 8.9 per cent in the past six days.

Water companies will be in the news on Tuesday when the Office of Water Services announces the level at which they are permitted to raise prices over the next five years. There was speculation last week that household water bills will be slashed by as much as pounds 1bn. The FT-SE index of water companies fell 3.6 per cent over the week, led by a 7.9 per cent drop in United Utilities. The industry group has shed about 7 per cent this year, while the FT-SE 100 gained 5.5 per cent.

Any potential price cuts may already be reflected in the stocks. "This is exactly the right time to buy into the water sector," said Neil Massie, manager of the Johnson Fry Utility Trust.

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