Market Report: Early Christmas cheer brings a four-month high

THE STOCK market closed at its highest level since early June yesterday, encouraged by the tantalising prospect of 6 per cent base rates by Christmas.

At one time the FT-SE 100 index was up 43.8 points in often heavy trading. As so often happens, the market got overheated and the index ended 28.7 higher at 2,645.7.

Second line stocks were in demand with, for the first time since it was launched, the FT-SE 250 index much stronger than Footsie.

But the market also had second thoughts about the Government's alleged dash for growth. It fears a much more cautious approach than has been indicated will be adopted. With tempting profits to be taken there were even reports of investors prepared to sell for cash, and with New York uncertain shares closed on a tame note.

Unless there is another round of rate cuts, this week's 81.8 Footsie gain looks vulnerable.

Government stocks, at one time up more than two points, ended about pounds 5 8 higher.

The bombed-out building, building materials and property sectors, seemingly impervious to the last two base rate cuts, led the advance. Shares which seemed friendless and unwanted were suddenly in demand.

The prospect of increased spending and lower interest charges created the impression that the outlook for the sectors could be about to undergo a significant change.

Barratt Developments rose 9p to 73p, BPB Industries 12p to 157p, RMC Group 44p to 448p and George Wimpey 11p to 106p.

On the property pitch Great Portland added 17p to 115p, Land Securities 16p to 431p, MEPC 28p to 308p and Slough Estates, where takeover hopes linger, 4p to 124p.

But power shares were again a drag on the market as uncertainty increased about the industry's prospects following the Government's coalmines about- turn. The four generators gave ground and the electricity distributors had a dull session.

Lloyds Bank was hit as S G Warburg cut its profit forecasts. It seems Warburg has yet to decide on its final figures, but the market took the view this year's estimate was about to be cut from pounds 800m to pounds 600m with next year's lowered from pounds 975m to pounds 825m. The shares lost early gains to close 10p down at 424p.

Barclays encountered yet another downgrading although the shares, by now accustomed to such events, closed 11p higher at 324p. Goldman Sachs is the latest to cut, reducing this year's forecast from pounds 290m to a pounds 50m profit with the dividend reduced to 14p.

On the oil pitch Shell was hit by a Hoare Govett downgrade, losing 5p to 536p. Hoare is cutting its profits estimate from pounds 3.2bn to pounds 2.85bn.

General Electric Co was another to miss out. Defence cuts and lower interest rates reducing the return from its cash mountain pushed the shares 5p lower to 244p. They have fallen 8p in two days as the market has made heady progress. The possible delay in the switch to gas fired generators could also hit the group.

BAA lost early height as UBS Phillips & Drew was rumoured to have said sell. The shares, at one time up 10p, ended down 22p at 731p. On Monday Hoare Govett cut its profit forecast.

British Airways, expected to announce a Davies & Newman deal tomorrow, rose 7.5p to 303.5p.

Food retailers were subdued, with Barclays de Zoete Wedd said to be cautious. Asda lost 1.75p to 41.75p.

Stores were firm on interest rate considerations. Kingfisher improved 20p to 523p, helped by the absorption of hovering stock.

Beers and leisure shares were also strong with Forte, up 7p to 164p, ignoring another forecast of a dividend cut - this time from County NatWest.

T Cowie, the garage and leasing group which is a favourite interest rate play, rose 8p to 135p. First National Finance Corporation gained 6p to 30p.

Fisons moved ahead 7p to 215p. A spokeswoman volunteered: 'There is no news. We haven't discovered anything. We haven't even come across the usual crop of bid rumours.'

Rank Organisation advanced 18p to 548p as a meeting with analysts was well received. But Reuters fell 23p to 1,213p ahead of a telephone conference today which features the group. Last week Reuters weakened following a negative response from an analyst visit to its Globex trading system in Chicago.

Boxmore, the packaging group, reached a year's high of 190p following a 22.6 per cent profit expansion. Ramco Oil Services continued to be excited by its Caspian Sea oil venture, gaining 10p to 71p. Further consideration of results lifted Essex Furniture another 4p to 61p.

Anglia Television attracted attention. There was talk of profit upgradings, with County NatWest and SG Warburg said to be making positive noises. But with a number of delayed trades registering, some pondered the possibility of corporate action. Central Independent Television, which retained its franchise for a nominal pounds 2,000, was the name in the frame.

Property shares, despite yesterday's strength, do not attract many buy recommendations. But Asda Property, at 45p, has the support of Credit Lyonnais Laing. Profits this year, inflated by a pounds 5m sale surplus, will reach pounds 7.5m with pounds 2.5m next year, says analyst Selwyn Jones. Assets are put at 90p a share. He expects modest dividend progress - 2.05p this year and 2.1p next.