MARKET REPORT: LVMH expected to turn dry

The FT-SE 100 share index rose 25.7 points to 3,017.3 and the FT-SE 250 index 7.3 to 3,377.7. Share volume was 726.6 million with 21,223 bargains. Go vernment stocks were firm.

The long-running, often confusing relationship between the Guinness drinks giant and LVMH, the French luxury goods group, could be in for another shake-up. Stories flowed in Paris yesterday suggesting LVMH was losing its taste for drink and would be happy to dwell on its baggage, fashion and perfume operations.

Last year Guinness and LVMH reshaped their alliance when the spirit and stout group exchanged its 24 per cent indirect interest in LVMH for a 34 per cent direct stake in Moet Hennessy, LVMH's champagne and Cognac brandy subsidiary. LVMH subsequently reduced its direct involvement in Guinness from 24 per cent to 20 per cent in a £326m share placing through UBS.

The Parisian yarn says Bernard Arnault, chief of LVMH, is prepared to sell the rest of his group's drink interest to Guinness so he can use the cash to develop the group's other luxury goods interests, where he sees considerable opportunities for growth.He is, it is rumoured, taking the view that the champagne and Cognac markets are now too mature to offer much prospect for the type of heady growth he seeks.

The Arnault drink interest is also seen as sitting uneasily with his ambition to become a media tycoon. Selling his remaining interest in LVMH, or cutting his Guinness stake still further, could provide the cash to satisfy his non-drink hopes.

Guinness shares rose 6p to 421p in occasionally busy trading. They were helped by NatWest Securities which, although cutting its profit forecasts, continued to support the shares.

NatWest cut its estimates, largely on the back of the new Irish drinking and driving legislation, from £923m to £911m for last year and from £1,006m to £982m for this year.

The rest of the stock market continued Tuesday's late recovery, gaining 25.7 points to return above the sometimes crucial 3,000 level, reaching 3,017.3.

New York set the tone, producing another firm display on the back of the Mexican rescue package with the Dow Jones Average making further progress in early trading. It was enough, in the absence of any significant domestic news, to provide the spur the markets needed.

The expected US interest rate increase came after the market closed. It could push today's "Ken and Eddie" meeting towards another UK advance.

Take-over speculation flickered again. In late trading Kleinwort Benson and SG Warburg attracted buyers.

Kleinwort, which denied any bid involvement on Friday and sent its shares tumbling from 663p, rose 25p to 624p.

Observers are taking the view that quick return speculators must by now have been shaken out, and the latest buying has an informed look. Warburg gained 16p to 757p. TSB was another back in form, up 5p at 243p. Lloyds Abbey Life slipped 7p to 352p as it said it was not in talks with controlling shareholder, Lloyds Bank. There was, perhaps significantly, no statement from Lloyds, up 6p to 545p.

Although it is fashionable to rubbish takeover stories, it is interesting that many of the shares in recent bid excitement have recovered from their post-denial lows, adding support to the widely held view the market is set for a year of mega bids.

Wellcome, fighting a near £9bn offer from Glaxo, rose 11p ton 998p on indications of further support for the effectiveness of its Retrovir aids drug when used in connection with a Glaxo product. Glaxo rose 8p to 626p. SmithKline Beecham advanced 16p to 471p with an unidentified US recommendation said to be responsible.

Vodafone, regarded as a long-term target for the US giant AT&T, misdialled when it said many analysts were expecting too much from the mobile telephone group. Business, it said, continued to boom. But the rush of new subscribers would take its toll of this year's profits, estimated at around £395m. The shares, with Seaq putting turnover at nearly 66 million, fell 5.5p to 182.5p.

Electricities were subdued by reports that the industry regulator, Professor Stephen Littlechild, had made the remarkable proposal that 25 per cent of Northern Electric's shares should be refloated if Trafalgar House won control. Northern fell 26p to 944p.

Nurdin & Peacock, the cash and carry group where profits are under intense pressure, attracted bid talk, with the shares up 10p to 153p in relatively busy trading. SHV, the Dutch investment group which owns the Makro cash and carry chain, has a 14 per cent stake and would be the obvious candidate to take N&P out of its misery.

Caradon, the building materials group, enjoyed a late run as Barclays de Zoete Wedd turned positive on the sector. The shares gained 8p to 235p.

House builder Bellwinch picked up 3p to 36p, anticipating encouraging interims and possibly a dividend this month.

Tomkins, the engineering to food group, rose 7p to 229p, following its application to list its ADRs on the New York Stock Exchange. They have been on Nasdaq since 1988.

Costain, the troubled builder, rose 2.5p to 22.5p with Seaq putting turnover at nearly 18 million shares. The rumour causing the excitement was that Hanson, the market's bidder for all seasons, was about to strike. But Costain, priced at £101m, hardly represents the big investment opportunity that Lord Hanson, the chairman, yesterday told shareholders he was seeking.

Perkins Foods rose 1p to 65p but remains perilously near its year's low. The group is deeply involved in the Netherlands and could suffer extensively from the floods. In 1993 it achieved most of its profits there with sales of £221m. The floods should not influence last year's profits; about £21m is expected. But this year's £23.5m estimate may have to be revised.