Market Report: Pathetically thin trade produces a bears' picnic

AT LUNCHTIME, the stock market seemed to be heading for its worst day since the 1987 crash.

Battered and bruised, the FT- SE 100 index was more than 85 points down and government stocks were off more than pounds 1 1/2 .

The helter-skelter slide reflected worries about New York and disarray in world bond markets.

Inflation was on its way up; so, consequently, were interest rates and the index could be heading for 2,500. Relatively low British base rates cast a shadow over the Government's ability to keep its fund-raising programme on schedule.

But when New York opened, it did not quite dance to the bears' tune and the more gloomy forecasts proved to be exaggerated - at least in the short term.

So, at the end of what many dealers regarded as a frightening session, Footsie's fall was 51.8 at 2,971.1 and gilts losses had been pulled back to nearer pounds 1.

Even so, Datastream calculated that more than pounds 12bn was wiped from share prices and Footsie ended at its lowest since the start of the month.

The crunch occured in pathetically thin trading. The gilts retreat caught the futures players, who in turn sent market-makers scurrying for cover.

The dramatic performance by the index was achieved against a turnover of 460.1 million shares which, allowing for inter-market trading, could indicate that genuine investment trading was a mere 100 million shares - a ridiculously low level for such a wounding result.

Dealers reported very little interest. Institutions were sitting on the sidelines, they said, and most private investors were passive. What selling they detected came from overseas.

The whole sorry episode, it was suggested, merely underlined the fragility of the market, which seems intent on absorbing every bearish indicator while blissfully ignoring any of the more encouraging signals.

But it is of such despair that long, cruel bear markets are made.

In the gloomy atmosphere double-figure falls were prevalent throughout the list.

But the building sector, demoralised by last week's strange interest rate comments by Eddie George, Governor of the Bank of England, displayed surprising resilience. Amec put on 9p to 113p and Barratt Developments 5p to 198p.

George Wimpey, strengthened by weekend reports that Prudential Corporation is prepared to pay pounds 90m for a stake in the builder's Little Britain development in the City, was at one time up 8p, finishing 2p stronger at 161p.

Among others higher were Taylor Woodrow, up 3p at 125p, and Tarmac, 1.5p at 137p.

The nervous and taut conditions were obviously not calculated to ease the rights issue jitters at Eurotunnel. But trading in the shares and nil-paid rights was modest. The shares ended 5p lower at 283p and the nil-paid touched 4p, eventually resting at 10p, down 3p.

GKN celebrated its Footsie return, gaining 7.5p to 594p. British Steel improved 5.75p to 139p on its results and dividend rise.

London Wall Equities, the stockbroker, looks for profits of pounds 250m and a 3.75p dividend this year, and pounds 375m and 5.5p next year.

Banks had an awkward session, with Barclays suffering the added discomfort of the Californian tax ruling, falling 15.5p to 546p.

But Royal Bank of Scotland continued to draw comfort from the Credit Lyonnais Laing review, gaining a further 3p to 432p. Kleinwort Benson gave up 13p to 434p as CLL cut its profit forecast from pounds 121m to pounds 105m.

The cola price war in the US clipped 9.5p from Cadbury Schweppes to 429p while BAT Industries slipped 5p to 401p as Salomon Brothers downgraded US tobacco forecasts.

Reed International fell 20p to 774p. There was talk that Goldman Sachs had turned negative, but some traders appeared more worried by the possibility of a bid for Ziff, the big US publishing house, which is for sale.

Caradon, the building materials group, lost a further 11p to 289p. There are indications that the large line of stock that has been hovering has at last been cleared.

Shoprite, the food discounter which has crashed as profits have failed to live up to expectations, recovered 6p to 65p.

Buying by a fund manager, almost certainly the Lloyds Bank pension fund, has helped the shares. Earlier this year they were 243p.

Creston Land & Estates edged forward 1p to 14p. The arrival of James Capel as house stockbroker helped. So did the willingness of Spurglade, selling a Westminster property to Creston, to take part payment in shares at 20p a time. Spurglade has taken on board a million shares. Creston ended four years of losses with a six-month profit of pounds 14,000 last year.

John Mansfield, the timber group, is raising pounds 1.6m through a placing at 3p a share by Ellis & Partners, the stockbroker. Dealings are due to start on Monday. The group has made losses. But with the placing proceeds helping to cut debts, and trading showing an improvement, it should produce profits this year. It cut its loss from pounds 359,000 to pounds 90,000 last year.