Market Report: Rate-cut hopes give shares a bounce

BLUE CHIPS staged their first one-day 200-point gain as Footsie, for so long slithering and sliding in retreat, surged by 205.3 points to 4,854 in heavy trading.

Hopes that the Monetary Policy Committee will feel obliged to cut interest rates, and sterling's less than robust display, rekindled the market's enthusiasm.

It is a dead cat bounce? The worry that equities could drift back remains, and it will require decisive MPC action to support the confidence the market still needs.

Spain's decision to cut its interest rate by 0.5 percentage points was seized upon in some quarters as an example the MPC should follow, although if it acts it will probably stick to the traditional 0.25 percentage point cut, which may not have much impact.

Turnover yesterday was the heaviest in months, with Seaq putting volume at 1.2 billion shares. Government stocks gave ground, losing almost a point.

Mid cap shares also bounced, with their index up 73 to 4,377.4, but the small caps were left out again, with their index falling 0.8 to 1,863.9.

The 4.4 per cent FTSE jump, which added pounds 37bn to market values, came as long-term bulls Bob Semple and David McBain of BT Alex.Brown pulled back their Footsie forecasts. They now expect the index to end the year at 5,500 (against earlier 6,000 predictions) and next year at 6,350, from 6,700.

The pound's weakness inspired engineers. British Aerospace flew 29.5 higher to 361.5p and BBA and Glynwed International were strong. TI Group, not so long ago nudging 700p, added 38p to 358p.

The year's figures from engineer McKechnie also helped sentiment. They were up to expectations, lifting the shares 29p to 295p.

Imperial Chemical Industries, savaged recently by profit downgradings and dividend worries, rallied a modest 26p to 472p. In an unusual move, as the market opened the company released details of a speech its chief executive, Charles Miller Smith, intended to make in New York.

The draft issued in London read like an upbeat trading statement, with specialty chemicals performing relatively well, polyurethanes recording double-digit growth and most other arms of the empire in good shape. Industrial chemicals, however, are still making losses.

The speech did not lead to a mass conversion of ICI's critics. Schroders remained negative; Dresdner Kleinwort Benson advised to reduce shareholdings and said it would cut its estimates.

Warburg Dillon Read was neutral but cut its forecasts from pounds 400m to pounds 340m and from pounds 470m to pounds 360m. SG Securities cut from pounds 383m to pounds 361m and pounds 389m to pounds 374m.

Banks were, as was to be expected following their resounding hit, well represented in the recovery. Barclays improved 77p to 944p and National Westminster Bank 54p to 771p. Abbey National, supported by DKB, rose 64p to 962p.

Misys, helped along by CSFB buy advice, was the best Footsie performer, recovering 42p to 360p, roughly half the summer price.

Other computer shares were undermined by Merrill Lynch caution. It alighted on Admiral, off 65p to 807.5p, and CMG, at one time down 145p but only 11p off at 1,230p at the close.

Pilkington, the glass maker, put on 5.5p to 68p. The shares have been firm in the last few days, allegedly reflecting director buying. Another reason could be that the fragility of the shares - they were 167.5p a year ago - has prompted corporate interest. There is talk of a possible Continental bid, maybe from Germany. With a valuation of around pounds 700m Pilkington looks and must feel vulnerable.

Shell, for so long in the doghouse, joined the romp, gaining 28.5p to 370.5p as Panmure Gordon prepared to circulate a long-term buy note.

In an uncomfortable last 30 minutes Railtrack reversed 82p to 1,493p. The group held an investment presentation on Monday evening but nothing occurred, it seems, to change analysts perceptions. The shares were recently riding at a 1,713p peak.

Bilton, the property group under attack from Slough Estates, added 18p to 308.5p on suggestions that MEPC planned to intervene. MEPC firmed to 469p and Slough softened 4p to 289.5p.

Serco, an engineering services group, dropped 50p to 782.5p on talk that a profits warning was on its way. After the market closed, finance director Kevin Beeston dismissed the speculation: "Trading is in line with expectations," he said.

Robert Walters, the recruitment group on the end of an agreed bid from a US group, rose 7p to 238p; intriguingly its rival recruitment group, PSD, continues to nibble at the shares; it picked 247,000 at 232p and now has 3.27 per cent.

Media Business slumped 32.5p to 72.5p after reporting that bid talks had broken down.

SEAQ VOLUME: 1.2 billion

SEAQ TRADES: 73,146

GILT INDEX: 114.62 -0.84

BRANCOTE, the miner, was the best-performing share after a gold discovery in Argentina. The chairman, Robert Prickett, said the gold was near the surface: "One can almost view it through the ground."

Extraction costs would, compared with many mines, be low, at around $140 to $160 an ounce, as Brancote would use open-cast mining. The shares shimmied up 40 per cent to 10.5p; since arrival three years ago they have touched 70p.

STOCKBROKER Sutherlands is looking for a continuing profits recovery at Sidlaw, the packaging group. Analyst Andrew Paisley raised his estimate of profits for the year just ended from pounds 7m to pounds 7.8m and is looking for pounds 9.4m this year. In 1996 Sidlaw produced just pounds 1m.

Mr Paisley says the shares, at 81p, do not fully reflect the performance. In the summer the price touched 120p; it was 351p four years ago.