MORE bid activity in the utilities sector and a reasonably successful outcome to the £3 billion sterling gilt auction helped the British stock market move ahead again yesterday. But trading continued to be subdued.
Southern Electric entered the takeover battle for Southern Water with a £1.6 billion offer, which topped the previous day's bid, now worth £1.54 billion, from Scottish Power.
The battle provoked further interest in the water sector, as investors speculated on the next potential bid candidates. Water provided the top four FTSE Mid- 250 index performers and three of the top six in the FTSE 100 index.
With British Gas and British Telecom also performing well, the utilities held the market up in the face of Tuesday's overnight weakness on Wall Street, where the Dow Jones Industrial Average fell 53 points. The Dow's fall meant Footsie started the day on a bad note, falling 8.5 points early on, but the leading index quickly recovered.
One early worry was relieved in the morning when the £3 billion long dated gilt auction proved reasonably successful, with cover of around two times. Nevertheless, gilts ended slightly down on the day, with the benchmark 10 year issue an eighth of a point lower.
There was some modest weakness on Wall Street in the afternoon, where the Dow was four points lower by the close of London trading. But Footsie held up well, backed by a strong futures market.
Despite the stimulus of the Southern Water bids, the British market seems to lack a sense off direction. Turnover continued to indicate that dealers were enjoying half term holidays with their children, with only 714.3 million shares traded by the 6 p.m count. The value of customer business on Tuesday was just £1.3 billion.
Few analysts are taking an aggressive line on the market's likely direction. Mr Tim Brown market strategist at UBS, said "The market feels very bank holidayish. There does not seem to be a vast amount of turnover. People are sitting on their hands and waiting to see what happens next. They have enough cash to feel apprehensive about selling equities and the political background is making them apprehensive about buying." The latest note on the British market from Goldman Sachs says that "hopes for it another base rate cut are receding following indications of optimism among consumers which contrasts with continuing, but thankfully not worsening, gloom amongst manufacturers".
Mr Paul Walton, Goldman's British strategist, still thinks that political risk will cause Footsie to fall to 3,400 by the year end but, in the short term, he says "An equity market stuck in the 3,650-3,850 range now seems the most likely outcome."
But Mr Corey Miller, who recently joined Credit Lyonnais Laing as a strategist, sees some hopeful signs, pointing out that the prospective price/earnings ratio on the London market is an undemanding 14.
