MARKET REPORT : Takeover spotlight turns on vulnerable CE Heath

There is a growing suspicion that CE Heath, one of the City's hard-pressed insurance brokers, is set to become the subject of corporate activity.

The sadly neglected shares suddenly came to life, climbing 8p (after 11p) to 158p in, for what has become a tired and wilting stock market constituent, busy trading.

They are still perilously close to their low. Their high, 517p reached four years ago, is but a distant memory for long-standing shareholders.

The group has been hit by tough trading in the insurance market, the Lloyd's of London disaster as well as falling public confidence in the life and pensions industry.

It is clearly vulnerable to a takeover strike, with an overseas group the most likely predator. James Capel, putting a break-up value of 240p on the shares, helped stoke up bid hopes.

But it is the feeling that the first signs of a revival are detectable at the battered broker which has created the current round of interest. And if the dividend is held, as some expect, the shares are returning more than 13 per cent.

Heath has been cutting its overheads and drawing in much-needed cash through asset sales. On Monday it realised pounds 16m from its 50 per cent holding in a Hong Kong group.

Earlier, it unloaded an Australian interest for pounds 28.7m.

There are suggestions its telesales broking operation is making unexpectedly strong headway, but it is the possibility Heath is edging nearer to floating its computer side that could provide the main impetus. In current market conditions its Datasure and Peter- borough Software offshoots could command a rich price.

The rest of the market simply went through the motions awaiting today's pounds 3bn government stock auction but, nevertheless, appreciating the rather calmer conditions in the foreign exchange markets and a firm New York opening. Gilts gave further ground.

The FT-SE 100 index moved narrowly, ending 3.8 points higher at 3,535.3.

Glaxo Wellcome followed Monday's upsurge with an 8.5p (after 22p) gain to 857.5p. Drug second-liners were back in demand, with Celltech and Oxford Molecular sought-after.

Banks also had their fans, with Merrill Lynch said to be positive. The latest US take-over excitement contributed, helping to lift already heady estimates of the cash inflow National Westminster Bank will achieve from the planned sale of its American banking side. NatWest gained 14.5p to 651.5p. Standard Chartered, up 14p at 499p, also gathered support on revived takeover gossip and Bank of Scotland edged forward 2.5p to 258p.

Prudential Corporation's planned move into direct banking did not, as might have been expected, have an inhibiting impact on the sector. Indeed, it prompted thoughts BAT Industries could feel the need to round off its financial side with a banking buy.

T&N was ruffled by more asbestos worries, skidding 6p to 160p. Holliday Chemicals, meeting analysts, rose 8p to 194p. Caradon, the building materials group, was heavily traded, sticking at 198p.

Northern Foods again edged forward. The shares improved 2p to 186p in often brisk trading. The group, which has found trading difficult, has met City investors but the nagging feeling that corporate action lurks is continuing to influence the price.

Acorn Computer gained 5p to 158p and Magnum Power, reflecting a new patent for protecting computer data if there is a power failure, jumped 26p to 142p.

Magnolia, a loss-making picture frame group, plunged 11p to 29p as Northampton Acquisitions bid 27p a share. The offer is already past the post, with shareholders representing 58.47 per cent of Magnolia accepting.

Northamber, a distributor of computer hardware and software, jumped 16p to 211p. Hopes are riding high the group will produce a sharp profits improvement. There has been market talk sales are running significantly ahead of budget and Tim Steer at Merrill Lynch is looking for half-year profits, due in December, of pounds 1.4m, up from pounds 500,000 last year.

First Leisure Corporation blissfully ignored the NatWest Securities profit downgrade, gaining 5p to 328p.

Middlesex, which has announced a joint venture with RTZ to cover exploration of its Nevada properties, is expected to strengthen its board today with a significant appointment. The shares held at 8.25p.

Millgate returned to market at 19p with the nil-paid shares moving from 5p to 7p. It has been the subject of a reverse takeover.

TAKING STOCK

rPlantation & General, formerly called Chillington Corporation, edged forward 3p to 60p. Interim figures are due tomorrow. They are expected to show a sharp advance on last time's pounds 971,000. But the results could be accompanied by an announcement that the group has sold a 1,000-hectare property in Indonesia for approaching pounds 10m. Most likely buyer is the Indonesian government. P&G has been reshaping; earlier this year it floated its Langdon Foods offshoot.

rThe signalled takeover bid for Casket, the deeply troubled cycle maker, should soon materialise. The offer, from another quoted company, is likely to be around last night's 7p close. The group suffered losses of pounds 12.3m, largely due to problems at its German offshoot, which went bankrupt earlier this year.

DATA BANK

FT-SE 100 3,535.3 +3.8

FT-SE 250 3,904.8 -7.7

FT-SE 350 1,759.4 +0.8

SEAQ VOLUME 629.5m shares, 27,032 bargains

Gilts Index 92.57 -0.10