Market Report: Rates fear turns rally into a one-day wonder

THE BURNING fear of higher interest rates demoralised the stock market yesterday.

With sterling falling into its ERM danger zone, Monday's euphoria was wiped out with the FT-SE share index ending 52.1 points down at 2,370.

Talk that the Government would be forced into a highly embarrassing interest rate increase, perhaps as much as two points, strengthened as the pound wilted under pressure and the Prime Minister called off a visit to Spain.

Shares were nervous from the opening bell. In a dramatic about-turn Monday's advance was shown to be as fragile as many had suspected. There was, once again, no great weight of selling. Indeed, trading activity was woundingly thin.

It is the very reluctance of many investors, big and small, to deal that is distorting market movements.

In the days before Big Bang it would have been inconceivable that the market could advance more than 50 points on volume of 537.9 million shares and then slump by almost the same amount on an even lower turnover.

The transparent, computerised market, hemmed in by a multitude of bureaucratic restrictions, is clearly no longer representative of the investment community.

It is dominated by market-makers, rightly seeking to protect their positions. In doing so they are destroying the market, not only for the much maligned small company but for the wider investment community.

Datastream calculated that Monday's upsurge was worth pounds 9.4bn. Yesterday's decline was pounds 9.74bn.

When such gyrations are allowed to occur on a published turnover of not much more than 1 billion shares - and probably half of that was represented by dealings between market-makers as they sought to protect their positions - the Stock Exchange should have more worries than whether certain stocks should be relegated to the already discredited bulletin board.

Many of the dollar-influenced shares that led Monday's advance bumbled along at the forefront of the retreat. Imperial Chemical Industries had a particularly difficult session as large lines of stock came on offer. At one time the price was down to 1,050p. It ended at 1,054p.

Hillsdown Holdings, despite a 250,000 purchase by its chairman, Sir Harry Solomon, was short of friends. Heavy turnover left the price 3p down at 79p.

An apparent attempt by Sun Alliance, through it is thought Goldman Sachs, to place its 14.4 per cent interest (63.5 million shares) in its insurance rival Commercial Union seemed to end in abject failure.

According to the Seaq volume figures CU's turnover failed to reach 3 million shares. Even so the story helped to drive CU 27p lower to 483p and Sun slipped 3p to 254p. The placing was said to have been attempted at 490p.

Although there was no evidence of the placing being completed the rumour could have been born out of a bought deal still to be unravelled.

Arjo Wiggins Appleton, where dividend worries surfaced recently, slumped 53p to 129p as it confirmed investors would have to live with a reduced income.

Vickers, the engineering group, had another difficult session, falling 4p to 80p. Carr Kitcat & Aitken is worried about trading and is looking for profits of only pounds 5m at the interim stage.

Granada Group fell 15p to 220p as a large line of stock hovered, seemingly unwanted, and County NatWest suggested the shares should be sold. Simon Engineering was hit 33p to 138p as Smith New Court downgraded.

There were some heavy casualties among second liners. Once high-flying Usher-Walker, the printing inks group, plunged 65p to 85p after a profits slide.

The transport group Tibbett and Britten reversed 31p to 573p as profits came in below expectations.

Airbreak Leisure, exceeding the market's worst fears with a pounds 2.9m interim loss, crashed from 24p to 10.5p. The shares were 66.5p earlier this year.

Clarke Foods remained weak, losing 3p to 18p.

The public relations group Shandwick at last responded to buying by its chairman, Peter Gummer. The shares rose 1p to 5.5p. Mr Gummer, who has purchase more than 3 million in the past week, declared he had picked up another 330,000, lifting his interest to 10.23 per cent.

TVS Entertainment held at 16.75p. The US entertainment entrepreneur Alan Hirschfield nudged his stake to 5.66 per cent. TVS has lost its commercial TV contract but some suspect Mr Hirschfield believes it has hidden worth through its ownership of MTM, the US programme maker.

The stock market reversed Monday's performance as the FT-SE share index fell 52.1 points to 2,370. The FT 30 share index lost 49.7 to 1,725.7. Trading volume did not reflect such a sharp Footsie movement. Seaq put turnover at 507.3 million shares with only 18,969 bargains. Government stocks fell by around pounds 1 1/4.

Matthew Clark, the wine and spirit group revamped by Peter Aikens, has lost another agency - Taittinger champagne, a brand it has handled for 15 years. In recent years Clark has had such brands as Martell Cognac and Jameson Irish whiskey snatched from its portfolio. Under the Aikens lead it has moved more heavily into production. The shares rose 3p to 415p.

Shares of Intercare, the medical supplies group which has attracted an attentive following, could be ruffled today following Chris van den Bergh's decision to sell a quarter of his stake. He is a director of Montis Medical, where Intercare has 75 per cent of the shares and Mr van den Bergh 25 per cent. The health group's shares fell 1p to 135p yesterday.