Market report: Banks lead rise in blue chips as rate fears fade

BLUE CHIPS, inspired by New York, surged ahead with Footsie climbing 141.3 points to 6,322.1 - the highest for a month.

Financials, weighed down in recent weeks, led the charge; Standard Chartered headed the field, gaining 79p to 938p as Morgan Stanley waxed eloquent about prospects.

The stock market's sudden outbreak of exuberance occurred at a time many would have anticipated it would be laid low by acute nervousness.

Today the Americans are expected to decide whether to lift their interest rates. On the basis that the market's main enemy is uncertainty, an indifferent display, at least, should have been the most likely outcome.

But London and New York took the view, with US bonds turning in a benign display, that they had overplayed the interest rate factor and a quarter of a point US increase had already been over-discounted.

With the banking world in a merger turmoil a display of affection for the financial community could not have occurred at a more advantageous time for the market. The huge three-way Japanese merger, talk of further deals in Germany and the French banking fiasco provided the ideal background for London banking shares to gather strength.

Lloyds TSB, up 45p to 890p, was encouraged by renewed talk of a Spanish banking strike. Despite its acquisitive policy Lloyds' appetite for deals has not been satisfied and some wonder whether any Spanish bid would be accompanied by yet another mutual takeover.

Bank of Scotland, up 47.5p to 786.5p, was given a little help by Credit Lyonnais; other banks higher included Barclays, 97p to 1,934p, and National Westminster Bank 46p to 1,271p. With banking the largest single Footsie sector, accounting for approaching 20 per cent of the index, the dramatic re-awakening of banking interest was responsible for much of the index euphoria.

The market display of fireworks was achieved in lopsided trading. Although the overall turnover figure, 1.2 billion, implied a busy blue chip session, more than 300 million of the shares traded were represented by three low- priced tiddlers.

Emerald Energy, up 1p to 4.75p, achieved a 188.1 million share turnover; Belgo, the restaurant chain run by the entrepreneur Luke Johnson, unchanged at 7.25p, attracted a 135 million volume, and Tuskar Resources, an oil group, a 41 million turnover with the shares holding at 0.8p.

Of the three Emerald was the only to produce a statement. It confirmed, after a two-year search, its long-rumoured Colombian oil find, a 200 million- plus barrel discovery at the Gigante field. The well's first year cash flow is expected to top $10m. Since the highly publicised exploration started Emerald's shares have moved between a 9.75p high and a 1.25p low.

Elsewhere it was the former glory stocks on the move. Besides the banks, telecoms, pharmaceuticals and to a lesser extent oils picked up.

SmithKline Beecham was the best performing drugs group, gaining 29.5p to 836.5p. Glaxo Wellcome, where stories of a strike at American Home Products still linger, improved 50p to 1,83p. The shares were helped by hopes the US regulators will put Lotronex, an irritable bowl syndrome treatment which could become a highly rewarding product, on their fast- track approval list.

Rank, the struggling leisure group, firmed 16p to 268p in brisk trading. Northern Leisure, which had been expected to buy First Leisure's chain of unwanted clubs, is now, it is said, about to buy the Rank night clubs division. Northern, under new management, held at 185p.

Allied Domecq, after shareholders finally ended the long- running bar room brawl by approving the sale of its pubs estate to Punch Taverns, firmed 11.5p to 558p. Gioma, a restaurant chain, was suspended at 62.5p ahead of a possible reverse takeover, which would embrace buying restaurants from its parent company.

Arena Leisure, 9.75p early this year, rose a further 7p to 41.25p. It is joining the Internet club by planning to broadcast live horse racing over the web within 12 months.

Racal Electronics, on break up hopes, gained 7.5p to 387.5p. The group cancelled its planned July analysts meeting and is helping to spark rumours of corporate action by failing, at least so far, to reschedule the meeting as promised for next month. Pilkington, the glass group, slipped 3p to 115.5p on the failure of the rumoured bidder to materialise.

Hilton, the hotel group which takes in the Ladbroke betting operation, cantered 10p to 233.5 following weekend reports it plans to sell its US gambling operation. Plans to join the betting revolution with a free telephone betting service also contributed to the excitement.

Allied Carpets, as bid interest piled up, gained another 9p to 70.5p, and JJB Sports enjoyed buy advice from Dresdner Kleinwort Benson, gaining 7.5p to 317.5p. Next, up 10p at 690p, drew support from Investec Henderson Crosthwaite. Saatchi & Saatchi, said to be planning a National Lottery bid and enjoying support from Warburg Dillon Read, added 5.5p to 239.5p. WDR put a 270p target on the advertising consultancy, which is also said to have won a $90m pan-European contract from Sony.

P&O, on talk of a pounds 7bn bid from Carnival Corporation, the US group which owns Cunard, rose 39p to 1,061p. P&O was dismissive but Carnival said talks - but declined to say what about - had taken place between the two groups.

Supporting shares turned in a rather mixed display. The mid cappers managed only modest progress but those on the lower reaches were far more exuberant with the small cap index moving to within 20 points of its peak, hit in May last year, with a 15.1 gain to 2,772.5.

Lady in Leisure, the fitness group, sunk to a new 65p low ,down 10p, as worries continued to mount about its ability to complete a pounds 1.6m cash call.

Focus Dynamics, the engineer, firmed 1.5p to 33p. In a surprise move the directors urged shareholders to reject the Sandy Anderson-backed offer, which had been seen as a form of management buy out. The company said it had received expressions of interest from other parties.

SEAQ VOLUME: 1.2BN

SEAQ TRADES: 81,797

GILTS INDEX: N/A

FSG SECURITY, a start-up operation which has still to get started, has arrived on Ofex, the fringe share market. The business. which expects to begin operating its first contracts next week, raised pounds 400,000, selling shares at 18p. The three executive directors have between them 36 years' experience in the security industry, working for some of the largest groups. They feel their contacts will be invaluable. The shares held at the 18p flotation price.

STORIES OF a bid for fund management group Johnson Fry are growing louder. Shares of the financial struggler, which scored from the old business expansion scheme, held at 182p, against a 211p high and 92.5p low over the past 12 months. The Aberdeen fund management and investment trust group is regarded as the most likely to strike. Its shares, in brisk trading, climbed to a new five year high, gaining 14.5p to 165.5p.