MARKET REPORT: Concern grows over long infatuation with financials

The market's love of the financial sector shows little sign of abating, and is beginning to cause concern that it will eventually turn out to be a dangerous affair. In what has become an almost morning ritual for market-makers, shares across the financial sector were marked up sharply in early dealings as Lloyds TSB produced results at the top end of City expectations.

Investment houses issued "buy" notes like confetti, with HSBC James Capel, Lehman Brothers, Salomon Brothers, SBC Warburg and Kleinwort Benson all making extremely positive noises.

Lloyds TSB spurted 60.5p to 736p, a high for 1997 and more than double the level they traded at a year ago. Barclays, due to report next week, advanced 8.5p to pounds 12.94p and Abbey National jumped 12p to close at 849.5p, despite bearish noises from Hoare Govett.

Halifax leapt 6.5p to 743p after growing rumours that it was to be included in Morgan Stanley's next review of its global index. The newly converted bank was also benefiting from recommendations from Lehman Brothers and Merrill Lynch, among others.

Analysts predicted that the banks' seemingly unstoppable rise would continue, but warned that the market now had such high expectations of the sector that the slightest disappointment would lead to a "bloodbath".

Leading financial shares were, apart from the stores and consumer groups, out of synchronisation with fellow Footsie members. While blue chips all advanced in morning trading, the balloon was burst as Wall Street kicked in with the Dow Jones losing a swift 100 points over concern of a much bigger than forecast drop in unemployment.

Footsie, which cruised effortlessly over the 4,930 mark before Wall Street opened, quickly moved into the red once trading started on Wall street.

Just after 3pm, Footsie was as much as 29 points lower, before a last minute cut the deficit to just 8.2 points to 4,899.3.

Investors yesterday went shopping at the likes of Tesco, encouraged by good figures from John Lewis, owner of Waitrose. Tesco improved by 10p to end the day at 421.5p, helped by advice from NatWest to switch out of Asda. The renewed strength of the pound also persuaded dealers to buy shares with earnings rooted in the UK. Other retailers were also strong, with Next again in fashion, adding 4p to 763p, and Marks & Spencer up 3.5p to 763p.

Water shares, though, ran out of steam. Thames Water finished off 18.5p poorer at 785.5p, while United Utilities ended 2p poorer at 703.5p, partly due to a "sell" from Hoare Govett. South West Water and Anglian Water also joined the waterslide, down 14.5p and 10.5p respectively.

Meanwhile, electricity stocks were not looking particularly sparky. The Energy Group led the fall, after news that its merger with PacifiCorp would be referred to the Monopolies and Mergers Commission sent the company's shares shooting down 27p to close at 651p. Others in the sector followed Energy's lead, with PowerGen shedding 9p to finish at 721.5p, and ScottishPower ending 9.5p poorer at 421.5p.

It was a healthier day for pharmaceuticals, however, after a "buy" note for Medeva from Societe Generale. Medeva added as much as 5.5p during early trading, but eased slightly during the afternoon, and closed just 2.5p better off at 208.5p. Glaxo Wellcome, buoyed by news that the German authorities had sanctioned the marketing of its Raxar antibiotic, recovered just under half its losses of the day before, jumping 15.5p to 1307p.

Investors were thirsty for drinks shares, with Kleinwort Benson keen on Allied Domecq, which notched up another 12.5p to close at 447p. Bulmer also rebounded 15p to end at 430p, and was in demand in morning trading, moving up 3p to 837p, but retreating to 834.5p at close of play.

Also experiencing a bit of a renaissance were building stocks, with dealers taking "bottom-fishing" - taking advantage of a slide in the sector's share-prices in recent weeks. Wolseley closed up 6.5p to end at 435p, and Meyer International edged up 3.5p to 413.5p. Analysts said the shares had been helped by reasonable builders merchants figures on Thursday.

Other heavyweight stocks on the make included British Aerospace, which soared 26p to close at 1359.5p after Virgin Atlantic Airways announced it would buy 16 Airbus A340-600 aircraft.

Unilever also jumped 52.5p to 1821.5p after unveiling good profits and a four-for-one share split.

Taking Stock

A4 Holdings, publisher of titles for the intellectual property licensing industry, is floating on Ofex early next week.

The company - which will have a market worth of pounds 1m - is placing 333,000 shares at 60p each. It aims to raise up to pounds 200,000 to fund further growth. A4 Holdings, run by 28-year-old Adam Driscoll, publishes five titles and organises conferences and trade shows.

Almost 4 million shares exchanged hands in Alliance Resources, the US oil and gas company, during late trading. There were rumours that a heavyweight delegation of the company's American management had paid a visit. After allowing for double counting, the shares dealt amounted to 7 per cent of the company. Shares closed up just a penny at 29.5p.