LONDON MARKET: Investors give up drugs and start building

UK stocks may be mixed this week as investors avoid GlaxoWellcome and other drug makers, in favour of construction companies and engineers, on speculation that reports will show economic growth. Commodity companies could gain on speculation that faster global growth will boost commodity prices. BP Amoco and oil stocks are likely to gain, as well as mining companies Rio Tinto and Billiton.

Last week, the FT-SE 100 index dropped 0.81 per cent to 6420.6. Glaxo led declines, down 7.4 per cent, while ICI led gains, up 22 per cent. "This move towards economically sensitive companies is likely to continue," said Robert Talbut, head of equities at Royal & Sun Alliance. "As people are hitting the favoured companies of last year, it's going to be difficult for the market to rise."

Among stocks falling are those that led gains last year. Vodafone dropped 7.8 per cent, Colt Telecom fell 10.4 per cent and Telewest Communications lost 10.6 per cent.

As optimism over economic growth expands, investors are selling so-called "defensives" such as telecommunications companies and drug makers. Still, telecom companies could benefit from speculation about mergers in the industry. Deutsche Telekom is rumoured to be in "advanced" talks to buy Cable & Wireless. C&W shares rose 4.5 per cent on Friday.

The switch from growth into cyclicals "will be around for a bit longer", said Talbut. "I would characterise this as a redressing of a wide valuation anomaly, and that anomaly will close up this year."

Among cyclicals, Blue Circle leaped 14.8 per cent last week, while British Steel soared 16.7 per cent. Producer prices, retail prices and first-quarter gross domestic product figures are expected this week. They could lift optimism about economic growth, spurring a rise in BTR Siebe and other engineering companies, which are sensitive to the fluctuating economy.

Resource and mining company shares are likely to continue last week's gains. Stocks worldwide surged on signs that economic growth in Europe is set to pick up, and a recovery is under way in parts of Asia, helping lift commodity prices.

Metals markets are emerging from a 18-month slide that saw prices reach the lowest in years. While some doubt the rout is over, a month-long, 15 per cent rally in aluminum and a 12 per cent gain in copper has lured some investors into commodity stocks that look cheap.