Market Report: Rights worries spark biggest fall since October

THE HAUNTING possibility of a mega rights issue finally caught up with the stock market yesterday. Shares were unhinged by thoughts of a cash call, possibly as much as pounds 1bn, being announced today.

With a poor sterling performance damaging hopes of lower interest rates and the latest producer prices figures resurrecting the spectre of soaraway inflation, the market was ill-equipped to face the strengthening cash call rumours.

The FT-SE 100 index was at one time down 47 points. It closed 38.7 lower at 2,831.3, the biggest one-day fall since October, when the index was at 2,446.3.

Second-liners, as measured by the FT-SE 250 index, were also in ragged retreat but some of the tiddlers on the perimeter of the market continued to attract buying interest.

After its strong run the market was due for a sharp correction. Many were only too keen to take some of the profits made in recent weeks. And the rights issue story attracted ready support, particularly from market-makers keen to gather stock.

But, despite scepticism in some quarters, the pounds 1bn rights rumour was the single most significant influence in the market's retreat.

Barclays, the banking group, was one name in the frame. It made a big, controversial issue in 1988 and would hesitate to tap shareholders yet again. Insurance groups, such as Legal & General and Royal Insurance, were other favourites. Glaxo Holdings, Grand Metropolitan and Unilever were others providing grist to the rumour mill.

Trafalgar House, the construction and leisure group, is, it is thought, set to make a more modest cash call, say pounds 150m. The market expects the call, probably tomorrow, at 62p a share.

Already it faces cash demands from BT, the telecommunications giant. The third call of its last issue will soon be due and the Government is already working towards the sale of its remaining 22 per cent stake.

Realisation that the market had to mop up half of Charter Consolidated's interest in Johnson Matthey, at a cost of pounds 154.6m at 456p a share, came as an unwelcome surprise. It had been thought the entire JM interest was destined for a corporate home.

Some large lines of stock were on offer. Around 5.5 million Albert Fisher, down 6p at 66p, remained unwanted. J Sainsbury, 19p lower at 529p, was ruffled by a 3 million line and Hanson, off 2.75p at 257.5p, had to contend with a 2.5 million line. One million ML Laboratories on offer left the price 3p down at 1,185p.

Oils shrugged off the gloom, encouraged by hopes of a production cut being agreed at this weekend's Opec meeting. British Petroleum, another rights candidate, gained 3.5p to 271p helped by bullish noises from the US and talk of onshore exploration in China.

Aran Energy was busily traded, gaining 2.5p to 23.5p as Barclays de Zoete Wedd said buy up to 35p. Brabant advanced 10p to 39p on the Aberdeen Petroleum offer.

British Gas, however, lost 6.5p to 283.5p. Hoare Govett, the company broker, lowered its profit estimates, partly because of the mild winter. Last year's forecast was cut by pounds 35m to pounds 865m and this year's by pounds 70m to pounds 980m.

Marks & Spencer was lowered 8p to 334p following an analysts' meeting.

Thorn EMI held at 865p as Carr Kitcat & Aitken kept its forecast at pounds 330m after meeting the company. It regards the shares as undervalued.

Wellcome gained 10p to 895p ahead of an expected Panmure Gordon upgrade. Forte rose 2p to 190p as Credit Lyonnais Laing said buy. Smith New Court clipped Wolseley 19p to 555p by trimming its forecast by pounds 5m to pounds 100m.

Stores were mostly lower, with Storehouse down on the rumour that its chief executive, David Dworkin, is leaving.

Some of the recent high-flyers had a difficult time. Acorn Computers fell 31p to 115p, Rhino Group 3.5p to 29p and Tadpole Technology 43p to 281p.

Filofax, the ring binder group, held at 89p. A little-known investor, Patricia Roxby, sold the 8.05 per cent interest she disclosed in November. She paid about 50p a share and appears to have made a profit of pounds 500,000.

B Elliott held at 55p. Beeson Gregory says the revamped group still has a lot to prove but the rating is not demanding.

It sees Elliott, once a leading power in the machine tool industry, returning to profit in the year starting in April, achieving pounds 3.3m. For the current year it forecasts a pounds 150,000 loss.

Shares were in ragged retreat yesterday, with the leading indices pulled lower. The FT-SE 100 fell 38.7 points to 2,831.3 and the FT-SE 250 index dropped 31.6 to 3,019.8. Turnover stretched to 694.9 million shares, with 34,101 deals completed. Government stocks gave ground

Roger Shute, the former chief of BM Group, has located another investment. Expect news soon that he has picked up about 4 per cent of loss-making Brooke Tool Engineering. The shares slipped 0.25p to 7p yesterday. Mr Shute has in recent weeks acquired nearly 5 per cent of Anglia Secure Homes, a sheltered homes group, and 4.4 per cent of GM Firth, the steel group.

Redbird Holdings, the little- known Panamanian company, continues to adjust its portfolio, mostly confined to small engineering and related businesses. It has picked up 3.14 per cent of British Dredging, where Newarthill and RMC Group are already on the register. BD rose 1p to 92p. Other Redbird interests include Brooke Tool and Downiebrae Holdings.

Zambia Consolidated Copper Mines put on 15p to 325p yesterday. The shares have risen more than 100p in two weeks. Michael Coulson at Credit Lyonnais Laing remains keen on the shares which, he believes, are the cheapest quoted copper shares on the market. He estimates profits of dollars 220m in the year to end-March and dollars 416m in the following year.