BRITISH shares were dealt a serious blow by the Ofgas report into price controls at Transco, the pipelines subsidiary of British Gas. A much harsher than expected review of Transco tariffs stunned the stock market, which immediately chopped its quotations for Gas shares and prompted widespread unease across the utilities sector.
Such was the impact of the regulatory moves against Gas that analysts were forecasting a halving of the Gas dividend and warning domestic and international investors about the outlook for privatisation issues. "This is a terrible advert for Railtrack", said one utilities analyst.
Haunted by the Gas news the British market was always struggling to make headway and the FTSE 100 index eventually ended the session a net 15.2 lower at 3,739.2, close to its low for the day. Second line stocks were more resilient but could not ignore the implications of the Ofgas report, which affected the other utilities. The FTSE Mid-250 index settled 0.4 off at 4,512.4.
The daunting news about British Gas cast something of a shadow across the market. Dealers said the FTSE 100 had earlier kicked off in relatively good heart, lifted by the prospect of more takeover activity across many sectors and also by the excellent showing by Wall Street on Friday evening. Then, the Dow Jones Industrial Average closed with a 43 point gain.
But the niggling absence of any of the rumoured bids, especially in the engineering and insurance sectors, where Lucas and Sun Alliance were seen as prime takeover targets, plus the unhappiness surrounding British Gas, quickly took hold and saw British share prices begin to wilt.
The build up of downside pressure on Gas gnawed away at sentiment in London and the withdrawal of any support across the market saw the Footsie fall back sharply before edging off the bottom just before the close of trading.
Earlier, the market had to contend with the lack of any bid news, which was only partly offset by confirmation that Standard Life, the mutual insurer, was looking at selling on its 32.5 per cent stake in Bank of Scotland, a story that first circulated around a month ago.
Lucas, Sun Alliance and the rest of the insurance sector had been targeted as potential bid stocks at the end of last week.
It was not all bad news for the market, however. A handful of the leading retailers came in for keen support, notably Next and Burton, both of which are due to report to shareholders later this week.
The first of a long list of economic data this week, producer prices, both input and output, had little impact on gilts or equities. Dealers were bracing themselves, however, for crucial data on unemployment, earnings and inflation figures in Britain due later this week.
In the US, there are retail sales, inflation and industrial production numbers due in the next three days.
Turnover in equities reached 676.9 million shares at 6 p.m., with non FTSE 100 index stocks only just eclipsing the leaders and accounting for 52 per cent of the total. Customer business on Friday was valued at £1.97 billion.
