IF there were lingering doubts about the equity market's reluctance to follow international bonds higher, they were dispelled yesterday as share prices in London and across the rest of Europe surged higher.
Ever-increasing hopes that another series of European interest rate cuts could be in the pipeline, plus a "coffee-time" market raid on Forte by Granada, and more big gains in bonds, bonds and gilts saw momentum in equities pick up speed all day.
At the close, the FTSE 100 index easily regained the 3,700 mark and finished at the day's high of 3,710.6, up 47.9, or 1.3 per cent on the session.
With much of the day's activity concentrated in the FTSE 100 stocks, the second-liners were left trailing but still managed to record good gains. The FTSE Mid-250 settled 15.9 ahead at 4,037.5.
Granada's mid-morning raid on Forte, orchestrated by the leisure group's joint brokers, ABN Amro Hoare Govett and BZW, gave a massive boost to the equity market's turnover, which topped 900 million shares. At 6 p.m., turnover reached 901.9 million, with Forte accounting for 18 per cent.
The raid fell short of the 9.9 per cent the bidder was entitled to acquire via market purchase under the rules of the takeover panel. Forte's financial advisers were quick to latch on to news that Granada garnered only 9.2 per cent and that 1.4 per cent had been purchased from market-makers.
Granada's move pumped over £300 million into the market. This was said to have been responsible for sizeable gains in many stocks now viewed as prime takeover targets. Among those promoted as potential targets were Ladbroke Rank and Thorn, all of which raced higher.
Prospects of further big bids in other sectors also triggered an upsurge in takeover rumours elsewhere. Composite insurers were aggressively bought. Late news of a rights issue by a French insurance group was seen as almost certain to produce a burst of takeover speculation in the sector this morning.
Trading began calmly, with the FTSE 100 opening modestly higher in the wake of Wall Street's overnight fall, which saw the Dow Jones Industrial Average down 17 points at the close.
But a strong opening by bonds and gilts and the Granada raid transformed the market, with the FTSE 100 ploughing through 3,700 and carrying on up for the rest of the session.
The Dow opened comfortably higher but ran into pockets of selling pressure which left it down eight points some time after London had closed.
Dealers said remarks by Dr Hans Tietmeyer, president of the Bundesbank, suggesting there was scope for further cuts in German interest rates, increased the chances of the German central bank sanctioning a rate cut tomorrow. Any move by Germany would probably be followed by the Bank of France, they said.
But expectations of a reduction in British rates after today's meeting between the governor of the Bank of England and the Chancellor of the Exchequer, were over-optimistic, it was thought.
