Market Report: Oil and interest rates fuel alarums and excursions

THE week ended on an ominous note, with dealers showing signs of extreme concern about interest rates and a dark cloud of rising oil prices starting to form on the horizon.

Prices for oil futures rose around the world as the strike crisis in Nigeria, a member of Opec, deepened. Pengassan, the striking white-collar oil workers union, was reported to have instructed Shell, which produces half of Nigeria's output, to shut down all operations.

The Brent crude price for delivery in August climbed 40 cents to dollars 18.70 a barrel. Oil prices are at their highest levels for more than a year.

And there were signs yesterday that the Nigerian crisis could rumble on for some time. A meeting scheduled between the country's government and the oil worker's union was postponed after Thursday's riots. Fresh talks are planned for Tuesday, but many dealers remain unconvinced that the two sides will meet, let alone reach agreement.

A London oil dealer said: 'Nobody wanted to be short of the market ahead of these talks, and prices look like staying firm for the next few days.

There are also believed to be a number of fund buy stops just above current levels and this should provide short-term traders with an incentive to push the market higher.

Rising crude prices was good news for oil shares. British Petroleum, expected next week to announce an increase in second- quarter net income from pounds 261m to more than pounds 320m, gained 4p to 412.5p. Shell, despite being caught in the middle of the Nigerian crisis, eased only 1p to 730p.

Oils stood out from the rest of the market, which suffered as equity dealers hit the panic button and evacuated equities for more than an hour yesterday afternoon on a whiff of smoke rising over interest rates.

For once, the FT-SE 100 index moved in the opposite direction to Wall Street where prices moved ahead as fears of higher US interest rates subsided after the news of a unxpectedly weak 3.7 per cent rise in gross domestic product.

UK equities were already weakened by disappointing half- year results from Lloyds Bank and from the latest purchasing managers survey.

The panic-inducing puff of smoke in the afternoon came from a plunge in the short-sterling futures contract, pointing to a hike in rates to 6 per cent.

A 15-point fall in the FT-SE 100 turned into -26 in a matter of minutes. Investors, however, remained calm and did not follow market-makers in the rush for the door.

Only 80 million shares were traded in the hour after the alarm sounded at 3pm.

While the panic gave way to nervous gossip in the last 30 minutes, the FT-SE 100 still finished the day 13.3 lower at 3,082.6. Total volume trading was less than 510 million shares.

Lloyds Bank fell 18p to 544p. Interim taxable profits of pounds 605m were right at the bottom end of wide-ranging expectations which, among optimists, stretched to more than pounds 670m. There was also a lack of positive news on the bank's proposed takeover of Cheltenham & Gloucester building society . More than 4 million Lloyds shares were traded.

Barclays, however, benefited from the negative reaction to Lloyds and climbed 9p to 554p. Lehman Brothers suggested that investors dismount from the Black Horse and team up with Barclays.

Abbey National, next out of the results starting blocks on Monday, slipped 9p to 397p. NatWest Securities expects profits to rise from pounds 301m to pounds 417m.

Water shares were cooler in the wake of Ofwat's latest 'K' factors on pricing. Main fallers were Severn Trent, which retreated 16p to 556p, and Yorkshire, which lost 13p to 543p.

On the bid front, speculation intensified that Tesco, off 1.5p to 231.5p, would not stand by and be gazumped by Sainsbury, down 3.5p to 407.5p, and would raise the stakes for Wm Low, steady at 324p.

Share prices were unsettled by fears of an imminent rise in British interest rates. The FT-SE 100 share index lost 13.3 points to 3,082.6, although it was as low as 3,069.7 at one stage. A smaller 2.6-point fall to 3,640.2 was recorded by the FT-SE Mid.

Shares in Ocean Group dipped 6p to 262p after news that Nicholas Barber, chief executive, was leaving this weekend. Observers of the freight management and environmental services company expected him to leave much later this year and were left speculating whether Ocean will soon make an acquisition. Shanks & McEwan, the waste management company, is said to be a target.

Evans Halshaw is unabashed by the poor reception to its recent pounds 29m rights issue to fund the purchase of Davenport Vernon and is making a further issue of shares and loan notes to buy the GT Cars Group of seven car dealerships. GT will cost a total pounds 5.7m, satisfied by pounds 2.7m of loan notes, pounds 2.25m of shares at 454.5p each and pounds 750,000 cash. Evans' shares held at 443p.

Tate & Lyle bucked the trend yesterday, rising 7.5p to 427.5p. Uplift came from a bullish recommendation by Credit Lyonnais Laing. The broker predicts that profits from Bundaberg, the Australian sugar producer and refiner owned by Tate, could soar. It has raised its forecast for Tate from pounds 261m to pounds 266m for the year to September and by pounds 10m to pounds 296m for 1994/5.