Market Report; Safeway and GUS give dealers bull and bear stories of the day

RETAILERS featured prominently in the stock market's shop window as GUS and Safeway provided dealers with the bear and the bull story of the day.

Pessimists alighted on GUS as growing rumours of difficult trading and impending analysts' downgrades sent the mail order-to-Argos group 25.5p lower to 696.5p.

The whispers were given a halo of respectability by the high turnover figure. More than 5 million shares changed hands, with one investor pushing through a line of 2 million well below the market price.

Some dealers fear that GUS could be hit by a sales slowdown. Two recent downbeat statements, from Marks & Spencer and Debenhams, fuelled concerns that consumers are tightening belts when it comes to buying clothes. GUS's mail-order business is big in frocks and suits and could have suffered the same woes.

More optimistic traders focused on Safeway and rehashed talk of a bid from Kingfisher, up 5p to 730p. The supermarket chain bucked the falling market's trend and closed unchanged at a five-year low of 234p. Hot speculative money was said to be chasing the stock in anticipation of a strike by the B&Q-to-Woolworths giant. The rationale for a deal is there: Kingfisher is cash-rich and acquisition-hungry after missing out on Asda, while Safeway is struggling and cheap. Proponents of the pounds 12.2bn deal were buoyed by speculation that Safeway has halted its share buyback programme - one of the requirements to enter takeover talk. But more sceptical sources said they believe no talks have so far taken place between the two companies. Less excitable minds said that the spike in Kingfisher share price was due to recommendations from brokers Schroders and Charterhouse and talk of European acquisitions.

The rest of the sector was also active. Storehouse was targeted by returning stories of a bid, possibly from Debenhams, but the stock was flat at 128.5p. Another gloomy trading statement robbed Sainsbury of 2p to 385.25p, while a Deutsche Bank push and 950p target hoisted Boots 0.5p higher to 761p ahead of today's AGM.

That was a good rise given the market's recent form. The FTSE 100 lost another 62.2 to close at a 3-week low of 6329.8 as the sellers won the day for the fourth consecutive session. The leading index has shed nearly 4 per cent since rising over 100 points last Thursday and nerves are starting to fray. Yesterday's setback came despite an opening rise in the Dow. London's weakness was blamed on the minutes of the Bank of England's Monetary Policy Committee which showed that members toyed with the idea of increasing rates a fortnight ago. A large programme trade by a leading investment bank and falls in the oils and drug sectors compounded the index's plight.

The oil majors were savaged by suggestions that Venezuela might drive the Brent price lower by increasing production. BP Amoco drilled 41p lower to 1190p in big turnover, while Shell shed 15.75p to 504p. The explorers suffered too, with Lasmo 4.5p lower at 159.5p, Monument 3.25p down at 69.5p and Enterprise 3.25p worse at 479.75p.

Pharma stocks were also on the sick list. SmithKline Beecham bled 16.5p to 774p as brokers such as Deutsche went bearish on Tuesday's figures. Glaxo, figures next week, is believed to be in even worse shape than SB and lost 44p to 1653p. Smaller rival Medeva plunged 4.5p to 120.5p after bad results. Rumours of a bid, maybe from spurned rival Shire, down 2.5p to 561p, are growing louder and louder.

The airplane engine maker Rolls-Royce jumped 3.25p to 269p on whispers that British Airways is concerned at Boeing's decision to award an exclusive contract for its superjet to Rolls' rival General Electric.

A positive trading statement and WestLB Panmure's support helped Railtrack to steam 54p ahead to 1235p.

Goldman Sachs' bullishness supported insurers Allied-Zurich, up 14.5p to 755.5p, and CGU, 14.5p higher at 904.5p. Rival Norwich Union was 2p lower to 412p on returning talk of corporate action. Lloyds TSB - up 1p to 836.5p after regulatory approval of the Scottish Widows deal - or Alliance & Leicester, down 13p to 826.5p, were the mooted partners.

VodafoneAirtouch firmed 10p to 1347p after shareholders gave it the power to buyback shares. Rumours of a large stake sale did not affect the stock. Cable & Wireless was 19.5p lower to 793.5p ahead of a two-day analysts' meeting in Washington to discuss its Internet plans.

The smaller indexes followed their leader in the doldrums and the FTSE 250 closed down 39 at 6,033.5, while the SmallCap finished 8.3 lower at 2,735.4. The investment bank Close Brothers was a rare bright spot, soaring 26.5p to 794p after agreeing a 95p-per-share offer for smaller rival Rea Brothers, up 40p at 97.5p. The market expects cash-rich Close to strike again soon.

The bus company FirstGroup motored 10.5p ahead to 333p after splashing $940m on the US' second biggest school bus operator.

The Mirror Group's 7p rise to 256.5p reflected The Independent's story of a 300p-per-share bid from rival Trinity, up 2.5p to 580p.

The Yale locks owner Williams secured 7.75p jump to 367p on vague rumour that US rival Tyco might bid for a third time. British Steel firmed 4.75p to 161p after telling shareholders that markets are firm. Engineer TI rose 3.5p to 440.5p on hopes of acquisitions, while talk of tough trading pushed rail maintenance group Jarvis 15p lower to 265p.

IT stocks suffered from Nasdaq's overnight weakness. Computacenter, down 23.5p to 525p, and Psion, 32.5p lower at 945p, bore the brunt. Chip designer ARM fell 42.5p to 985p despite stellar results as it failed to unveil the anticipated tie-up with Texas Instruments. The expected bearish statement from finance group London Forfaiting arrived and the stock shed 7p to a five-year nadir of 42p. A profit warning also hammered distributor Caverdale, 28p down to 73.5p.

Leisure group ENIC jumped 17.5p to 117.5p after confirming talks to buy a stake in Internet bookie Victor Chandler. Kettle-maker Kenwood Appliances boiled 12.5p higher to 83.5p as the disappearance of a seller reawakened bid rumours. Internet games tiddler On-Line jumped 36.5p to 147.5p on talk of a tie-up with a US company. Publishing minnow Intereurope rose 30p to 120p after agreeing a 120p-per-share MBO.

SEAQ VOLUME: 1.23bn

SEAQ TRADES: 81,380

GILTS INDEX: 106.76 +0.04

THE BULLS are moving into the internet tiddler Epic Group. The AIM-listed stock soared 9.5p to a year record of 45p amid rumours of booming trading. Some punters believe Epic's training division is having a great time. The unit, which specialises in staff training via the web, is believed to have won lucrative contracts with blue-chip customers. The subsidiary's performance should help Epic to post glittering figures in a couple of months.

CORPORATE ACTION rumours are swirling around the real estate minnow Bourne End Properties. The shares jumped 1.25p to 40.25p yesterday in hefty turnover of nearly 3 million. Some investors believe the developer has attracted the interest of a larger rival. The rumour has it that one of the sector's giants wants to capitalise on the slump in Bourne's share price from 93p a few years back. Shareholders would probably listen carefully to any offer.