Market Report: Gains for Severn Trent as City bets on RWE's target

DEALING ROOMS echoed yesterday to renewed calls of "The Germans are coming! The Germans are coming!" as RWE, the country's second-largest utility, gave its clearest signal to date that it intends to go on a British shopping spree.

Reported comments from Manfred Remmel, chief executive of RWE Energie, the company's electricity unit, kicked off another round of a much-rehearsed guessing game as traders tried to figure out which British company would fall within RWE's sights.

To keep the pot bubbling along nicely, Joerg Fabri, RWE's strategic director, weighed in during the day with some observations of his own, that the company was determined to emerge victorious from the inevitable consolidation of Europe's utility sector.

He said that he envisaged between five and seven super-utility companies standing tall across the Continent in a few years' time.

RWE has set aside about $27bn for buying favoured companies over the course of the next 10 years and dealers reckon that up to $10bn of that hoard could be splashed out over here.

The word of the well-informed yesterday was that RWE was winding itself up to strike before the end of the year, giving it just eight or so weeks to make a move ahead of the millennium.

The German leviathan, which is exploring a merger with rival VEW, has been linked most often with Severn Trent, up 32p to 904p, and United Utilities, 22p ahead to 600.5p.

Others in the sector that moved ahead included Thames Water, 25p firmer at 906p, and Anglian Water, 15.5p stronger at 670p.

RWE appeared to suggest that Centrica, the gas supplier that recently swallowed the Automobile Association, was a trifle rich for its tastes, knocking it back 0.75p to 175p.

"A huge wave of consolidation will change this picture," Mr Fabri teased, giving the professional rumour mongers plenty of material to get their teeth into.

Elsewhere, the tone was just a tad more subdued ahead of today's decision on interest rates, although bid talk helped to add some spice to telecommunications plays, and pharmaceutical companies gained ground on yet more merger murmurs.

The FTSE 100 rose added 28.8 points to close the session at 6,280.8 points, aided by early gains across the Atlantic in the Dow Jones Industrials. The FTSE 250 rose 46.3 points to 5,719.3, while the SmallCap put on 15.8 points to 2,659 points.

The Monetary Policy Committee's announcement will be delivered around midday, and the vast majority of dedicated number crunchers about town say that they are expecting a quarter-point nudge in rates up to 5.5 per cent. They note that the cost of borrowing was left unchanged after the last gathering in October, but price pressures appear to be building across the width of the economy.

More interestingly, a clutch of braver souls have been warning that investors could face a hike of 50 basis points, which if delivered could deal the market a nasty blow.

They argue that with house-price rises in particular showing about as much restraint as the French forwards in full flow, the Bank of England's guardians could well seize this moment to send out an especially uncompromising message.

The last time that FTSE dabblers had to contend with a half-point jump was the best part of five years ago.

Stock market punters will also have their gaze fixed on the European Central Bank, which the majority of observers believe will today tighten its key refinancing rate by a quarter point to 2.75 per cent.

Fortune today may not favour the brave so much as the exceedingly cautious.

Drug companies took the market's fancy as American Home Products Corp, a leading vaccine maker, and Warner-Lambert said that they could be moving towards a $65bn marriage.

Reversing some of Tuesday's losses, AstraZeneca gained 49p to 2,756p, while SmithKline Beecham rose 30.5p to 798p and Glaxo Wellcome added 27p to 1,790p.

Astra was helped on its way by a reiteration from Goldman Sachs of its "outperform" tag, while Glaxo executives aided their cause with predictions of strong second-half sales. Collectively, the drug makers put 19 points on the lead index.

Elsewhere, Telewest Communications topped the FTSE 100 gainers' list with a thumping 17.5p gain to 290p. Once again, all the talk was of the cable-TV company potentially falling victim to a US predator, although no single name has yet to gain any great credence.

The long-standing rumour has propelled Telewest to record an impressive advance, which sooner or later must invite pressure from Stock Exchange officials for Telewest to make some form of statement. Since touching a nine-month low of 204.85p on 24 September, the company's shares have motored ahead by 42 per cent.

Energis, the leading carrier of Internet traffic, also bounded ahead, clocking up a 85p gain to 2185p. National Grid, a 49.5 per cent stakeholder in Energis, firmed 14.25p to 481.25p

Tobacco stocks were on the move, with British American Tobacco 5.5p firmer at 390.5p.

On Tuesday, the company delivered an unwelcome Christmas present to 550 of its UK workers, sacking them to cut costs after its tie-up with Rothmans International. Rival Gallaher, was 2p stronger at 372p, on its reported bid for French rival Seita. Imperial Tobacco slipped 2p to 661.5p.

Pay-TV group BSkyB dipped 13p to 643.5p as News Corp chairman Rupert Murdoch said the group could issue shares to fund its proposed purchase of a 25 per cent share of Germany's Kirch media group.

Among the smaller fry, Computacenter raced 61.5p ahead to finish at 691.5p on news that it will launch a business-to -business e-commerce venture with Computasoft e-Commerce. The stock's backers talked loudly of its potential to strike 800p.

Newcomer Redstone Telecom recorded a strong gain on hopes that it was set to announce a lucrative contract. It ended 25.5p higher at 226p: the shares were recently priced at 120p.

SEAQ VOLUME: 1.19bn

SEAQ TRADES: 88,102

GILTS INDEX: n/a

j.lloyd-smith@independent.co.uk

WEST AFRICA is not for the faint-hearted but mining junior Mano River Resources, level at 11p, believes there's potential in the volatile area.

Market talk tips it for an advance when Mano discloses details of a tie-up, announced two weeks ago, with one of the industry's main players to develop its King George-Larjor mine in Liberia. Names in the frame include Anglo-Gold, Barrick Gold and Newcrest Mining.

IS THERE a strike afoot for tiddler motor trader Dixon Motors, unchanged at 129p? The company saw some chunky trades yesterday of 100,000- plus shares, including a buyback. Dixon, which surged last month after three directors beefed up their holdings, has been linked with rival Pendragon, off 0.5p at 178.5p. Also of note were moves by Trefick, Jack Petchey's investment company, which amassed a 7 per cent stake.