Market Report: Rate cut hopes spark another spectacular run

SHARES enjoyed another spectacular run yesterday, with the tantalising thought of further dramatic falls in interest rates spurring the FT-SE 100 index 44.4 points higher to 2,851.6.

The stock market paid scant attention to Whitehall attempts to dampen the enthusiasm. In busy trading investors were happy to chase interest-sensitive shares, with much of the action taking place outside the top 100 stocks and the tiddlers once again in demand.

The advance was underpinned as sterling's weakness enhanced the overseas earnings of international stocks.

But the upsurge was not the only talking point. Rumours swirled that the US investment house JP Morgan would today pull out of UK and European equities, concentrating on US stocks. Morgan sheltered behind the traditional response - 'We never comment on market rumours.'

Although sources close to the company denied any pull-out intention, there seems little doubt that changes are under way, with, in US-talk, a 'de- emphasising' of its London role a possibility.

Rumours of a link with SG Warburg have persisted. Warburg shares rose 20p to 600p.

The latest sharp market advance was strong enough to quell any rights issue fears, although the temptation to tap shareholders must be verging on the irresistible for some groups.

Trafalgar House, regarded as a prime candidate, fell 1p to 95p. The mystery securities house that has promised to produce 5 per cent of Trafalgar for Hongkong Land is due to deliver the shares tomorrow.

Recovery shares attracted interest. Heavily loss-making British Steel gained 3.5p to 77p (after 79p) in often busy trading. US investors were to the fore, with the New York investment house Kemper Securities adopting a bullish stance.

British Steel has edged ahead in the past week, ignoring the fierce US anti-dumping duties, which are seen as having little impact on the group.

Carr Kitcat & Aitken, one of the British houses supporting the shares, believes that with the entire industry deep in crisis more production cuts are essential.

Continental cutbacks, particularly in Germany, are expected. British Steel has already endured the pounds 450m Ravenscraig closure and is felt to be in a strong position to resist pressure for any further shutdowns.

London International Group missed the party as profit forecasts were pulled back. Barclays de Zoete Wedd lowered this year's estimate from pounds 38.5m to pounds 31.5m and next from pounds 49.7m to pounds 44.5m. Problems at the photo- processing operation and higher- than-expected interest charges prompted the revisions.

Drug shares also had a difficult session, with the Hillary Clinton factor continuing to create unease. Glaxo Holdings, which also had to contend with a negative US newspaper story, fell 16p to 678p. Wellcome lost 25p to 876p.

Oils were encouraged by hopes that Opec production will be cut and by currency influences. British Petroleum rose 8.5p to 354p and Enterprise 12p to 452p.

Takeover speculation encouraged some of the smaller oil shares. Aberdeen Petroleum gained 0.75p to 14p on expectations of a deal with Pittencrieff, up 8p to 331p. Premier Consolidated Oilfields strengthened 1.75p to 29p on talk that Clyde Petroleum may pounce. Clyde rose 6p to 46p.

The rights issue denial helped the food and drink group Allied- Lyons 11p higher to 589p. Gerrard & National, the discount house, rose 14p to 409p on a denial that it was the hovering bidder for Union Discount, down 1p at 108p.

The garage chain Frost Group continued to motor ahead. The shares reached a 593p peak, up 23p. On Friday it announced a two-for-one scrip issue.

Hanson gained 7p to 257.5p. The conglomerate scored from its international role but some chart followers are convinced the shares have entered new territory and are a buy.

British Aerospace continued to benefit from the Tornado deal. With talk of a General Electric bid also helping sentiment, the shares rose 21p to 274p. Rolls-Royce was another up on the Tornado contract, 6.5p better at 133p.

Electricity shares steadied after Friday's blow-out, with PowerGen back above 300p at 301p, up 5p.

But the Scottish power shares - Scottish Hydro Electric and Scottish Power - were both weak.

GWR Group, the radio network, advanced 35p to 380p in response to its 17.5 per cent interest in the new radio station success Classic FM.

The FT-SE index of the top 100 shares surged 44.4 points to 2,851.6. The FT-SE 250 index, measuring the next 250, jumped 34 to 2,988.8, a new high. Turnover was 793.4 million with 39,006 bargains. Index-linked gilts rose on inflation considerations, conventional stocks on interest rate hopes

Watch out for Gateshead-based Quality Software Products. It is planning a flotation via a share placing by Hoare Govett. QSP provides financial software to institutions and could time its debut to coincide with an important product launch later this month. The company made net profits of about pounds 1m on pounds 13m sales in 1992 and could attract an pounds 18m market valuation.

The housebuilders Persimmon and Tay Homes are selling properties to four business expansion scheme companies run by BWD Securities, the financial services group. The BES companies will let the properties on assured tenancies. The builders will make sure the companies return 110p for each 100p invested in five years. Persimmon rose 6p to 231p and Tay 11p to 181p.