Market Report: Rights jitters wipe out a 17-point gain

THE THREAT of a big rights issue continued to overshadow shares yesterday.

Early confidence was eroded as the conviction grew that a large cash call will hit the stock market next week. With so many balance sheets in urgent need of repair and shares romping along near their best levels the temptation to tap shareholders must be irresistible.

At one stage it looked as though shares would resume their progress, so rudely interrupted by the grudging German interest rate cut. But the rumour mill was quickly back in action and confidence evaporated.

The FT-SE index covering the top 100 shares, at one time up 17.6 points, ended 3 lower at 2,862.9. It is one of its blue-chip constituents that will produce any big rights issue. The rest of the market, where cash calls will be less demanding, was in rather more optimistic form, with the second-line index stretching to yet another peak.

Banks, ahead of their profits season, again attracted much of the rights speculation. Barclays, which made a controversial call in 1988, was one name in the frame. But with many analysts expecting a loss of up to pounds 75m and a dividend cut, a rights would be a difficult exercise even for a group with Barclays' clout.

National Westminster, expected to produce profits of pounds 450m and hold its dividend at 17.5p a share, is also firmly in the rights frame. So is Lloyds, with profits of pounds 700m and an increased dividend to 18.2p a share expected.

But Lloyds is not flavour of the week at NatWest Securities, which believes the shares should be sold.

Its pounds 700m outcome may be 'moderately pleasing' but there is less recovery potential and Lloyds is a relative loser in the improving economic climate. 'We believe bid speculation is largely unfounded and Lloyds would be unlikely to mount another bid attempt in the near term,' NatWest says.

But some felt Lloyds may be tempted to mop up the outstanding 39.9 per cent of Lloyds Abbey Life, the insurance group reporting on Wednesday. Profits down from pounds 306m to pounds 290m are forecast.

Barclays fell 16p to 429p; Lloyds 11p to 537p and NatWest 12p at 448p. Abbey National lost 10p to 367p following an agency cross of 950,000 shares at 377p.

Standard Chartered was another bank share pushed lower, falling 10p to 633p. But TSB Group, where takeover speculation lingered, restricted its retreat to 2.5p at 166.5p.

Among merchant banks, Hambros had an erratic session. Speculation about the result of a Norwegian court action at one time pushed the shares down 58p. They closed up 15p at 313p. If the action had gone against Hambros it could have cost the bank pounds 200m.

Takeover speculation returned to Fisons with Hanson put forward as the likely bidder. Fisons rose 6p to 233p; Hanson gained 1.5p to 262p. James Capel has turned bearish on Hanson. It does not support the view in some quarters that the shares are due for a heady run. Capel suggests Hanson's US operations have been overplayed and points to the value of a pounds 9bn cash pile at a time of low interest rates.

Clifford's Foods, where a takeover approach has been logged, improved. The ordinary shares soared 85p to 505p and the 'A' non-voting shares 32p to 216p.

Kwik Save, the discount chain, held at 799p as the Hong Kong- based Dairy Farm picked up another 100,000 shares, lifting its interest to 27.03 per cent.

Domino Printing edged ahead 4p to 604p. SG Warburg placed 3 million shares for Falkner Moller Partners, the Cambridge investment house. Its stake is now 9.7 per cent.

Liquid shares - beer and water - made headway. Waters were buoyed by the Panmure Gordon recommendation, underlining dividend growth. Beers were helped by Henderson Crosthwaite drawing attention to their underperformance. Whitbread 'A' frothed 12p higher to 479p.

Carr Kitcat & Aitken increased its forecast for T&N, the car components group, but with the market worried by a share overhang the price fell 5p to 188p. It is said a market-maker has built a 3 per cent interest. Carr has lifted this year's forecast by pounds 10m to pounds 83m. It has also increased its GKN estimate, from pounds 140m to pounds 160m.

The proposed French acquisition continued to subdue Kingfisher, down 11p at 527p. Reuters dipped 9p to 1,400p as Hoare Govett suggested taking profits ahead of next week's figures.

Acorn Computers had another hectic session, hitting 150p. The shares closed at 127.5p, up 11.5p. Tadpole Technology see- sawed, closing 5p lower at 344p.

Croda International's drugs side will be highlighted by the movie Lorenzo's Oil, due shortly. It is working on a drug that could help in the treatment of multiple sclerosis. Its Lorenzo's Oil, after which the film is named, treats ALD, a rare disease in boys. Henry Cooke Lumsden expects profits of pounds 30m last year and pounds 37m this. The shares rose 13p to 263p.

Credit Lyonnais Laing has changed its stance from bear to bull on Laporte, the chemicals group, which has absorbed the Evode glues business. It believes the deal improves growth prospects and 'the shares now represent a good way to ride the upturn in the economic cycle'. Profits are expected to be pounds 86m last year and pounds 112.5m this year. The shares are 652p.