Market Report: M&S rocked by talk of fresh profits warning

THE MARKET yesterday was shaken by rumours of another profits warning by Marks & Spencer.

Bears were out in droves pushing the fallen giant of Baker Street up to 4 per cent lower in pretty high volume. As the index took another hefty tumble, the one-time doyen of retailers settled 11p down at 355.25p, one of the day's worst blue chips.

Some well-informed dealers said that the M&S management, without the departed Sir Richard Greenbury, could end a three-day strategy meeting today with some bad news.

According to the rumour, the retailer is suffering a dip in food sales as rivals such as Sainsbury, up 1.75p to 384.25p, and Tesco - down 4p to 167.75p - eat into its customer base.

The bear theory states that M&S is losing ground on both location and offering.

On the first point, Tesco Metro and the similar formats have invaded Marks' traditional town centre patch.

On the second front, competitors have boosted their offering of ready- made meals and pre-washed salads - foods which were once M&S' exclusive realm. So far, Marks' troubles have stemmed from its clothes business, which last month caused a sharp fall in 1998 profits.

An admission that the food side is now on the sick list would signal that the worst is not over and could reignite talk of a merger with Tesco and Sainsbury.

The remaining blue-chips had problems in digesting the latest bout of nerves over expected US interest rate rises and closed lower.

The FTSE 100 fell 79.8 to 6416.7 - after having been over 90 points down - amid concerns that the US Federal Reserve will hike rates by more than a quarter point next week.

The Dow and the US bond market set the depressed tone. The stock index plunged over 100 points at the London close, unnerved by a sharp sell- off in US Treasuries.

The undercard did rather better, with the FTSE 250 ending just 14.7 down at 5892.2 and the Small Cap falling 1.7 to 2651.4.

BT was one of the few big hitters to record a rise. The stock closed 9p higher at 1,123p as house broker Cazenove was said to be an aggressive buyer. Insiders suggested that part of the 20m shares had been bought back by the company.

The publishing sector was excited by deals and bids.

Pearson made the headlines with a 78p jump to 1,328p. The market loved the sale of the merchant bank Lazard, the 5 per cent stake purchase made by Spain's Telefonica and an Internet venture.

Regional newspaper publisher Newsquest scooped the midcap with a 32p rise to 455p after receiving a 460p-per-share bid from US group Gannett, the owner of USA Today. A counterbid is possible, although the hot money is on an offer for Trinity International, up 8.5p to 575p, from Conrad Black's Hollinger. Trinity could scupper the move if it manages to buy Mirror, which was down 2.5p to 249.5p. Johnston Press, 14p higher at record 302.5p, is another target.

The publishing bonanza was completed by magazine group Emap, up 13p rise to 1,188p amid rumours of a sale of its consumer publishing division, and bid chestnut Reed International, up 6.25p to 451.25p.

Blue Circle cemented a 17.25p jump to 472.75p on talk of an acquisition of a foreign player or of UK rival Hanson, down 8.5p to 589p.

Vodafone was busy with profit-takers and topped the blue-chip fallers' chart with a 61p plunge to 1,272p.

Bid was the word for the undercard. Computacentre soared 42p to 458.25p after meeting brokers. Goldman Sachs is very bullish and has kept the company on its European recommended list. However, there are also rumours of a US bid and of a major contract from BT.

Manchester United scored a 4.5p victory to 199p on vague talk of a strike by a European media group. The engineer Senior plummeted 16p to 143p after a lukewarm trading statement.

An incredible mistake by the Exchange confused Delta with financial group DBS Management as the object of a bid approach. Delta soared and then settled just 4.5p higher to 154.5p when the mistake was discovered. DBS rose 45.5p to 185p.

Insurance broker Bradstock jumped 9.5p to 54.5p after saying it has received two bid approaches. A 60p offer is likely.

Bathroom and kitchens group Spring Ram rose 4p to 18p - the level of an agreed bid by Jacuzzi-maker USI. The deal came after Spring Ram told The Independent that it was not in talks around two weeks ago.

Property tiddler Birkby confirmed merger talks with Mentmore Abbey and jumped 41.5p to 288p, while the printing group Jarvis Porter moved 6p higher to 79p on revived talk of a 120-130p-per share bid.

SEAQ VOLUME: 1.27BN

SEAQ TRADE: 71,814

GILTS INDEX: 105.42 -1.02

OSMETECH, firmed 0.75p to a yearly peak of 20.25p yesterday on optimism over a forthcoming presentation.

Last month, the company changed its business focus from the production of an "electronic nose" to the detection of infections of the urinary tract.

The new strategy will be tested on Monday when one of the leading authorities on urinary infections will deliver his verdict on the group's technology.

THE PROPERTY and financial group Liberty International, is on the look-out for acquisitions.

The company rejoined the market yesterday after a major restructuring and rose 12.5p to 463.5p. The South African giant Liberty Life has reduced its stake to around 21 per cent and over 15,000 new shareholders have come on board. Liberty is prepared to spend up to pounds 2bn and is looking at undervalued companies in the property sector.