Market Report: Overseas investors add to the snowball effect

SHARES are defying gravity. More records tumbled as overseas investors joined the buying spree, driving the FT-SE 100 index up 48.6 points to 3,073.6 in busy trading.

But many traders are baffled and bothered by the dramatic upsurge, which, Datastream calculated, added pounds 9.2bn to the stock market, taking its valuation to pounds 681.5bn.

There is a strong belief among some dealers and strategists that shares are ahead of events. Kleinwort Benson has said it expects the index to slip to 2,900 in the present three-week account and Nikko Securities, the Japanese house, is content to stick with its 3,000 projection for the year-end.

But the snowball effect is evident. Japanese investors were prepared to sell the Tokyo market to buy in London and there was determined European and US interest. And on the domestic front institutions and, perhaps more aggressively, the private investor continued to seek stock.

Nomura, the Japanese house, remains on 3,500 for the year-end and Societe Generale Strauss Turnbull repeated its 3,250 forecast.

The great bull run, which has gathered pace since the near-destruction of the European exchange rate mechanism, fed on the latest round of Whitehall statistics, which appeared to strengthen the market's conviction that interest rates will fall sharply. Some look for a 1-point cut this month or early next, with a further reduction before the year end.

The yields now offered by blue chips, particularly utilities, compared with traditional savings establishments such as building societies, are the main influence behind the continuing resurgence of the small investor. Despite profit-taking, electricity and water shares, still enjoying yields above 5 per cent, made further headway.

But the market's two bombed-out sectors - drugs and, to a lesser extent, food retailers - helped encourage the advance.

With European markets strong and New York hitting new highs shares were not deprived of overseas inspiration.

At one time the FT-SE 100 index was up more than 50 points, with a smattering of profit-snatching removing a little of the shine towards the close. The FT-SE 250 index joined the fun, up 29 to a 3,494.9 peak.

Technical factors are, of course, making a big contribution to the exuberance. Market-makers are undoubtedly short of stock and on occasions are being squeezed mercilessly. They are one section of the investment community not enjoying the record-breaking run.

Drug shares scored some spectacular gains, helped by increasing evidence that the proposed Clinton healthcare reforms will not have the devastating impact on margins at one time feared.

Glaxo Holdings gained 33p to 591p, a two-day advance of 69.5p; Wellcome 55p to 733p (89p) and Zeneca 32p to 695p (35p).

The food retailers firmed, with J Sainsbury 12.5p higher at 505.5p and Argyll 13p up at 341p. Tesco was 3p better at 234.5p.

Banks failed to join the fun. Barclays fell 5p to 472p and HSBC came back 8p to 764p. Insurance brokers and composite insurers were also rather subdued.

Sedgwick edged forward 3p to 194p, with its nil paid rights up 5p at 23p. SG Warburg and Smith New Court placed 17 million nil paid for the US group Transamerica International, which has a 21 per cent voting interest through its holding of unquoted 'A' shares.

Investment and security shares continued to prosper. Invesco, the fund management group that has had a torrid time for breaking City regulations, rose 12p to 185p. It obtained a US ADR presence this week.

Euro Disney remained under pressure, down 30p at 655p, and First Leisure Corporation, off 15p at 319p, encountered a profit downgrading by its stockbroker, Cazenove. It has, apparently, cut from pounds 33.5m to pounds 31m and from pounds 40m to pounds 38m.

BICC, as downgradings followed results, lost 14p to 403p; the paper group Arjo Wiggins Appleton retreated 5p to 195p ahead of results. Tadpole Technology was back on the low road, off 9p to 236p.

Tiphook, the container leasing group, was another to buck the trend. The departure of its finance director, Rodger Braidwood, clipped the shares 10p to 232p.

Another casualty was the lawnmower group Ransomes, down 5p at 19p on the trading decline and the passing of the preference dividend. The preference shares collapsed 23p to 49p.

British Gas was again actively traded, ending 8p better at 335p.

Courtaulds, the chemical group, managed a 5p gain to 569p, despite a Barclays de Zoete Wedd downgrading. A BZW recommendation and the clearance of a large overhang helped push Rothmans International 23p higher to 694p.

Telephone shares, with the AT&T/McCaw Cellular deal still creating excitement, had another lively session. Vodafone, where takeover hopes lurk, rose 12p to 548p and Cable and Wireless, regarded as a possible bidder, put on 10p at 848p.

The Securicor trio were active. Securicor rose 25p to 1,065p and the non-voting 'A' shares 29p to 765p. Security Services, controlled by Securicor, climbed 25p to 660p.

The FT-SE 100 index scored its best gain since January, up 48.6 points to 3,073.6. The FT-SE 250 index was up 29 at 3,494.9. Volume reached 887.1 million shares with 39,288 bargains. The account ends on 3 September with settlement on 13 September. Gilts gave ground.

PDFM, the UBS fund management group that played a crucial role defeating the Airtours bid for Owners Abroad, has been adding to its shareholding. It now has 16.4 per cent compared with 10.8 per cent when it rejected the Airtours bid of about 145p a share in March. Owners shares are now 79p, hit by the trading downturn, which contrasted with the bullish indications during its defence.

Carr Kitcat & Aitken has duly produced its buy recommendation for Caverdale, the industrial consumables and motor dealership group. Analyst David Lawman is looking for profits of pounds 1.4m this year, a swing from a pounds 408,000 loss. He expects more motor dealer acquisitions and has settled for pounds 2m profit next year. The shares rose 0.75p to 12p. They have climbed 2.25p this week.