Market Report: Calmer nerves are signal for across-the-board gains

DEALERS in London enjoyed one of their busiest days for several months as investors took heart from the latest batch of economic statistics. Better-than-expected inflation figures, a further fall in unemployment and no sign of an acceleration in wage costs helped to further calm nerves about interest rates.

With the additional overnight boost from Wall Street, where the Dow Jones climbed 55 points, the FT-SE 100 index opened higher and closed 27.5 points ahead at 3,100.5. Volume trading was much better at 732 million shares, spread across almost 28,000 bargains.

The rise in share prices was across the length and breadth of the market. The FT-SE 250 index gained 28.4 to 3,535.3 and the FT All-Share increased by 1.1 per cent to 1,526.73.

Optimism about interest rates was fully reflected on the gilts pitch. Government stocks closed a full point up on the day.

Eddie George, Governor of the Bank of England, also improved the market's mood.

He told the British American Chamber of Commerce that it seemed that bond markets had exaggerated the likely rise in inflation and were probably 'exaggerating, too, the likely pace and size of the increases in short-term interest rates that may be needed to keep inflation down'.

Building and consumer- related stocks registered the biggest gains.

Breweries, in particular, were very much in favour. There is mounting evidence that the market is betting firmly that the Chancellor of the Exchequer will again refrain from increasing taxes on beer in next month's Budget.

One of the main reasons cited is that the Government may have finally taken on board the industry's concern over the continued rise in cross-Channel imports of beer, the effects of which are being felt right across Britain.

Bass was in demand. Shares in the brewing, pubs and Holiday Inn hotels group rose 7.5p to 537.7p. Besides the betting on duty rates, some investors reviewed their stance on the stock in the light of the more positive statement last week from the Forte hotels company.

Thoughts about takeovers among regional brewers were also rekindled by Matthew Clark's takeover yesterday of the Gaymer cider and branded drinks business. Drinks analysts were positive about the acquisition, but Clark's accompanying pounds 65m rights issue took the shares 36p lower to 589p.

Shares in Morland, the regional brewer, were chased 22p higher to 510p in very thin trading. The company, one of the best performing in the sector since Greene King failed with a bid two years ago, is said to be high on the buy list for the Lazard investment trust when it completes its fund raising.

Barry Dravers, at the Greig Middleton broking house, said the trading outlook for regionals was also far more positive than for the majors. He added: 'Real ale volumes are growing strongly, a trend which is set to continue. The concepts of real ale and food being sold in pubs are proving a commercial success.'

He also favoured the focused pub retailers like JD Wetherspoon, up 22p to 514p, and said they were likely to 'form the preferred area of investment for the Lazard trust'.

Scottish & Newcastle advanced 9p to 500p. Dealers are anticipating that the company will soon spend up to pounds 200m buying the freeholds on more than 300 Chef & Brewer pubs bought from Grand Metropolitan.

The market's refreshed view on interest rates sparked several large gains in the retail sector. Boots added 13p to 525p, Next improved 5p to 247p, and WH Smith closed 15p higher at 451p.

Body Shop, which has had a turbulent few weeks due to adverse media comment in the US, firmed 5p to 223p.

Interim results from the company are due today. City analysts are looking for Body Shop to lift its headline pre-tax profits to between pounds 11.9m and pounds 12.5m against the pounds 10m achieved in the comparable period last year.

British Aerospace, up 12p to 471p, finally waded in with its takeover bid for VSEL, up 82p to pounds 13.10.

The move lit the fuse under other defence stocks. Smiths Industries finished 12p ahead at 434p, and GEC, still viewed in some quarters as a rival bidder for VSEL, rose 6.5p to 296p.

Takeover rumours continued to swirl around Kode International despite the engineering group last week denying bid talks were taking place. The price rose 8p to 62p yesterday.

Leading share prices recorded solid advances for the fifth consecutive day, the longest-running sequence of gains for three months. The FT-SE 100 index surged 27.5 points to 3,100.5, and the FT-SE 250 28.4 to 3,535.3. Volume totalled 732 million shares.

There is gossip in headhunting circles that Alpha Airports has recruited a high-flyer to run its retail operations. The name in the frame is Hilary Lewis, who has worked with Harrods for about 25 years. She is credited with developing the Harrods Airport retail division. Shares in Alpha, which was hived off from Forte and has more than 40 retail outlets, rose by 1p to 147p.

Trading in the tightly-held ACT Group shares was a tidy 718,000, with several delayed trades towards the close. A very positive recommendation by analysts at the regional broker Albert E Sharp was said to be the catalyst for the activity. The shares, which stand at 99p, are said by Sharp to be significantly undervalued, and should outperform strongly in the medium term.

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