Market Report: Market ignores CBI gloom and bets on Bundesbank

CAUTION was thrown to the wind yesterday with investors displaying almost outright contempt for a gloomy survey from the Confederation of British Industry, and the market enjoyed one of its best days in almost three months.

Germany may have a lot to answer for tomorrow if it does not cut interest rates, with dealers firmly of the belief that a move by the Bundesbank is a certainty.

Additional fuel for yesterday's 35.2-point surge to 2,879.4 in the FT-SE 100 share index was provided by the overnight high on Wall Street and a strong futures market.

There were signs in the futures market that investors were looking to take the Footsie above 2,900. At one stage the futures traded at a 22-point premium to the cash market, before the differential was narrowed to a more normal 15 points by the close.

Just five Footsie constituents lost ground and four stood still. The losses, though, amounted to no more than a couple of pence, and included Forte, down 2p to 219p, amid some more investor briefings ahead of the company's close season.

However, some dealers were concerned about the strength of yesterday's advances and felt that a correction could be on the cards.

There were rumours in the Liffe market that today's pounds 3.25bn gilt auction might not be well covered. Long-dated gilts recorded losses of around half a point.

A softer opening on Wall Street, caused by IBM's thumping losses, provided the only real wobble.

At least yesterday's gains in equities - unusually for the first week of the school holidays - were backed by solid investment demand. More than 662 million shares were traded, spread across 31,000 bargains.

Pearson's decision to demerge Royal Doulton and Camco set the ball rolling in early dealings.

The news must have seen Rupert Murdoch's champagne glass overflow, filled as it was the day before by his pounds 350m deal to buy a controlling stake in the pan-Asian StarTV group. His holding of 46 million shares in Pearson was swiftly reduced by slightly more than a third, with 16 million placed through Goldman Sachs at 468p each.

Pearson volume was 39 million and the price closed some 27p higher at 467p, having hit 475p earlier.

Meanwhile Mr Murdoch's News International media and publishing group advanced 8p to 222p.

The day's proceedings were also enlivened by Eurotunnel and Transmanche Link finally burying the hatchet on their long row.

Eurotunnel sprinted 27p to 434p, and useful gains were made by members of TML. Costain rose 2p to 36p, BICC gained 18p to 416p, Taylor Woodrow put on 4p to 114p as did Tarmac to 137p, and Wimpey closed 3p higher at 175p.

Recommendation of the use of Retrovir, the anti-Aids drug, by the influential New England Journal of Medicine provided a fillip for Wellcome. There was also talk that Lehman Brothers was poised to issue a buy note, helping Wellcome climb by 25p to 665p.

Banks were again lively ahead of their interim reporting season. Lloyds, in particular, stood out with a 15p spurt to 582p.

Lloyds, which will be the first to report on Friday, is expected by analysts to show a profits increase from pounds 369m to around pounds 450m.

Barclays added 8p to 482p, Abbey National firmed 3p to 398p, TSB finished up 2.5p at 196.5p, and National Westminster rose 4p to 493p.

Merchant banks also scored gains. Hambros climbed 15p to 360p on the settlement of a long-running Norwegian claim against it. An out- of-court payment of pounds 7.25m has been made, with no admission of liability.

'It's a cloud that's been hanging over the shares, and it's really not a lot of money to them, especially as they should get tax relief of about pounds 2.4m on that,' an analyst said.

Oils also made some running ahead of next month's third-quarter results, and a slightly firmer crude price. British Petroleum finished 5p higher at 299.5p, and Shell put on 7.5p to 627.5p.

BP also benefited from news that production on the extended wells in the Sherwood reservoir on the Wytch Farm oilfield had started. The other partners are Clyde Petroleum, up 3p to 49p, Goal Petroleum, up 1.5p to 57p, and Premier Consolidated, up 0.5p to 23.75p.

Encouraging trading reports from several companies left their mark. Hunterprint improved by 6p to 41p after announcing a 50 per cent increase in new orders.

Menvier Swain's results were well received, resulting in a 13p rise to 600p. Figures from the recently floated Stagecoach and Inveresk enjoyed similar treatment, rising 4p to 140p and 2p to 170p respectively.

Fleming Investment Management has built a 21 per cent stake in Clayform Properties to confirm its place in the Martin Landau fan club. The relationship goes back to his timely disposal of Imry at the top of the property market, which netted Fleming a tidy profit. After Clayform's recently announced two-for-one placing, Fleming is expected to end up with about 10 per cent. Shares are 36.5p.

Watch Rhino, the computer games retailer run by Bev Ripley and Terry Norris, the ex-Cityvision duo. Little attention has focused on its merchandising arm, which is poised to cash in on the dinosaur mania caused by the Hollywood blockbuster Jurassic Park. Rhino holds UK licensing rights allowing it to market a range of gift items bearing the film's title. Rhino shares were unchanged at 31p.

Shares in Tamaris, the nursing homes operator, had a torrid session, plunging from an already low 6p to 2.75p on a capital reconstruction. Every 100 preference shares will be converted into 960 ordinary. Each existing share and each ordinary arising from the conversion will be sub-divided into one ordinary and one deferred. And pounds 1.3m will be raised via a placing and offer of 79 million shares at 2p.