Market Report: Blue chips dive as Brazilian worries spread

FOOTSIE FELL back below 6,000 points as the stock market fretted about Brazil, New York and the receding possibility of an interest rate cut next month.

The blue chip index plunged 161.1 points to 5,861.2 in heavy trading, with turnover again around 1.3 billion shares.

Brazil's fragile economy remained a cause for concern, hitting most world markets, including New York.

But the Dow Jones Average, down 175 points at one time during London trading, also had to contend with the impact of earnings figures from the IBM computer giant.

Hopes of lower interest rates suffered a blow from stronger-than-expected fourth quarter gross domestic product data, perhaps indicating a soft landing rather than recession.

It was obviously the type of session when high flyers are picked off as investors snatch profits. Telecoms have led this year's Footsie charge, and not surprisingly it was the likes of Colt Telecom, suffering a 142p hit to 1,140p, and Telewest Communications, off 16.75p to 227.25p, in the firing line.

Turnover was ballooned by the Energis share placing, conducted by HSBC. Sixty million shares were sold on behalf of National Grid at 1,650p. The offer was twice oversubscribed.

The placing - and the sale of what are called Equity Plus Income Convertibles - cuts Grid's shareholding in the telecom group to 49.5 per cent, thereby making Energis eligible for Footsie membership. Energis shares fell 112.5p to 1,600p and Grid 39.75p to 513.75p.

HSBC, said to be facing the possibility of making extensive provisions on its Thailand investments, lost a further 69p to 1,649p. Standard Chartered retreated 49p to 759.5p in sympathy.

Cable & Wireless had to contend with downgradings as well as the sudden flurry of misdialling. Morgan Stanley still gives the stock an "outperform" rating and has lifted its target price to 1,000p but no longer regards the shares as "a strong buy". Commerzland was much more negative - sell, was its advice. The shares lost 83.5p to 856.5p.

Supporting shares were battered. The mid cap index collapsed 46.7 points to 4,829.1 and the small cap gave up 12.2 to 2,093.1. Government stocks, shone through the gloom helped by talk that the EU should ease conditions for Britain to join the single currency. They scored gains of up to 50p.

Internet surfing was again largely unrewarding. Virtualinternet recovered 25p of Thursday's relapse to 230p but the rest of the bunch looked decidedly old-hat, with controversial On-Line down another 31.5p to 97.5p and Internet Technology 28p to 144p.

Takeover action left its mark. Even GRE, the Guardian Royal Exchange insurance group, finally emerged blinking into the harsh spotlight of the bid arena. After many false dawns following GRE's decision last year to talk to possible buyers, Royal & Sun Alliance - not the long-rumoured AXA or Prudential Corporation - said it was in talks, lifting GRE 14.75p to 369.25p. The talks are not exclusive; so AXA, Pru or another group may yet appear with an offer.

Royal, which said any takeover would not require a rights issue, fell 21.75p to 465.25p.

Asda, the superstores chain, may also be back in the bid spotlight. At one time there were strong rumours that Wal-Mart, the US retail giant, might strike. Now Ahold, the Dutch group, has become the rumoured predator and Asda, in busy trading, rose 1.5p to 157.5p.

Portsmouth & Sunderland Newspapers jumped 315p to 1,500p as rival Johnston Press picked up 14.99 per cent, planned a tender offer for a further 10 per cent and could consider a full bid. Johnston rose 3.5p to 217.5p.

Yorkshire Water emerged as the bidder for York Waterworks. It is offering 457p for each ordinary share and 440p for each "A". The ordinary shares rose 15p to 440p and the "A" 10p to 430p with Yorkshire shares a shade lower at 513.5p.

Servisair, an aircraft support group, flew 41p higher to 217.5p after rejecting a 200p a share offer from the Amey construction group. Wyndham Motor became the latest garage group to attract bid attention, advancing 35p to 185p.

Chemical group Albright & Wilson firmed 6.5p to 68.5p as management buyout stories again went the rounds.

Trading warnings sent Air Partner diving 86p to 180p and London Forfaiting 36p to 66.5p. Garton Engineering lost 31.5p to 115p on the back of disappointing profits, and Fortune Oil more than halved to 2p after forecasting a "substantial" loss.

SEAQ VOLUME: 1.3 billion

SEAQ TRADES: 73,227

GILTS INDEX:

RUMOURS WERE flying that Rage Software is on the verge of linking with Microsoft over its football game, which is thought to involve Ruud Gullit. The company refused to confirm the stories, merely saying it is in talks with four or five of the world's best known computer groups. The shares, with Seaq putting turnover at 10 million, rose 2,5p to 12.25p.

REFLEC, a tiny, battered and bruised group making reflective inks, was the best performing share, gaining 75 per cent to 3.5p. The excitement stemmed from settlement of a long running patent dispute which allows Reflec to manufacture and sell its reflective products. The shares, which arrived at 40p three years ago, had surged above 100p at one stage.