Rate hikes dampen London

Press, 15 August 1988, Page 15

Rate hikes dampen London

NZPA-Reuter London London equity prices ended lower on the week as surprise interest rate hikes in both the United Kingdom and the United States sparked fears of further world wide increases in rates.

The Bank of England began the week by signaling a 1/2 point rise in U.K. base rates to 11 per cent and Tuesday saw the U.S. Federal Reserve raising its discount rate 1/2 point to 6.5 per cent. Both cited the need to dampen inflationary pressures in their economies as the major reason for the hikes.

The FTSE 100 share index ended the week 32.5 points down at 1843.4, but trading volume was modest in the traditionally quiet August holiday period. While the feared tightening by other central banks has not appeared so far dealers said the market remained nervous ahead of a batch of important economic data from both sides of the Atlantic this week.

Though, as one dealer said “All the fundamentals of strong U.K. corporate performance and dividend growth, along with the continuing bid

talk are likely to help underpin the market.” Indeed, Pearson, Commercial Union, BOC and GKN all posted results at the top end of market expectations, while BP’s second quarter historic net cost profit at £357 million (SNZ9ISM) vs £3I7M (SNZBI3M) last year, was in line with forecasts. The status of Kuwait’s 21.68 per cent stake in BP, Ip higher at 259, was further complicated when the British Government said it could not accept a Kuwaiti memorandum to limit its voting rights and. its holding in BP. Dealers

said concerns still remain that Kuwait may be forced to reduce its BP stake to 14.9 per cent or less.

Shell was 31p off at 1028 though after reporting a 4 per cent fall in net income second-quarter to £633M (5NZ1.6238). Market forecasts had ranged from £6SOM to £BSOM.

BAT was 3p up at 427 after proposing to raise its offer for U.S. Insurer Farmers to SUS 72 a share from SUS 63 in return for an agreed merger by August 19.

Cadbury - Schweppes ended 3p off at 375