Banker's bet on rates offers some relief

Traders, betting on a week of rate cuts on both sides of the Atlantic, helped leading shares close yesterday at a two-month high. While banking stocks were an obvious gainer, companies with substantial debts benefited from the feeling that by Friday, they will be paying less interest.

First up will be the US Federal Reserve - which is due to make its views known later today. The markets are hoping for a half-percentage point cut, which would be the tenth rate reduction this year.

Later in the week, economists are holding out for a quarter-percentage point cut by both the Bank of England and the European Central Bank.

Gains among banking and telecommunications stocks helped the FTSE 100 index end the day at 5209.1, up 79.6 points. HSBC gained 17.5p to 780.5p and Lloyds TSB rose 21p to 725p. Barclays added 84p to close at 2175p, buoyed by renewed speculation that the company is considering an assault on Standard Chartered, which ended 22.5p higher at 733p.

In the telecoms world BT - with debts of over ?17bn - gained 13p to 353p, with Vodafone up 4.25p at 166.5p.

Among other gainers, Rolls Royce picked up 8p to stand at 157p, as the aero-engine manufacturer announced it would take a slice of a $15bn (?10bn) aircraft order from the Dubai-based Emirates airline. Rolls Royce's slice of the action is worth $475m. British Aerospace will also benefit from the order for Airbus super jumbos, and closed up 9p at 351.75p.

After a day in the doldrums as investors fretted about today's interim results, Marks & Spencer put on a late rally to close 3.25p higher at 301.25p. Traders said all eyes would be on what the company could say about consumer confidence and current trading in the wake of the terrorist attacks.

British Airways managed a similar about-turn, ending up 8.5p at 155.25p. A downbeat note from Goldman Sachs coupled with fears that the stock could be booted out of the index by the demerger of BT's mmO2 wireless offshoot later this month did the early damage. But the company's traffic statistics, released in the afternoon, helped to pull the stock into positive territory.

BA's figures for October were better than expected; they still showed passenger traffic dropped by a quarter in the month, but the airline suggested that December could see a slight improvement.

Media stocks had a solid day after analysts at Lehman Brothers decided the sector is worth a punt - moving from a neutral to an overweight stance on the sector. BSkyB put on 27.5p to 821.5p, with Reed International closing 21p higher at 598p. Telewest, up 5.25p at 49.75p, also benefited from positive comment, with Banc of America saying the stock was worth picking up.

The good feeling among leading shares spread to the FTSE Techmark index, which rose 40.1 points to 1,433.9, and the FTSE 250 index, 53.5 points higher at 5,445.9. While traders complained about a dearth of exciting stories among leading shares, there was some action among second liners.

Shares in British Polythene Industries gained almost 15%, to 349.5p, as the firm announced it had received at tentative approach. Europe's largest maker of polythene film fought off a 310p per share bid from rival MacFarlane, 1p lower at 77p, last year. However, the new approach is not believed to have come from MacFarlane - which dumped its 11% stake in the business over the summer and has been pulling out of the plastics industry.

Traders pointed to Bunzl, off 9.5p at 422p, as a possible bidder. The company bought BPI's retail carrier bag business in July and dealers suggested the company could come in for the rest. BPI refused to give anything away last night. But more likely, say insiders, is a management buyout of the core of BPI. The company has been selling off non-core assets since it saw off the MacFarlane bid.

Photo-Me International gained 1p to 55p on hopes that the company is close to securing a sale of its photobooth operation. Last month, Photo-Me admitted it was considering selling parts of its business as it warned on profits.

But yet another profits warning from e-business consultancy Nettec yesterday sparked concerns about the possible collapse of continuing takeover talks. Nettec, which has already depressed the market twice so far this year with downbeat projections for the future, received a bid approach late last month widely believed to come from founder and former chairman Jeremy White. Mr White, who owns a quarter of the business, is understood to have plans to take the business private.

However, yesterday the company, which floated last April at 240p a share, said conditions in the UK and France remained challenging and that sales growth had lagged behind expectations. At this rate it looks as if the results of its recent restructuring will not appear until the first half of next year. The stock dropped 1.25p to 10.5p.

Staying among the small stocks, online betting group Betinternet.com dropped half a penny to 17.5p as the company ended takeover talks and opted to raise ?3m with a subscription offer.

Wallpaper designer Osborne & Little shed 57.5p to 335p after a warning that problems with a new IT system have hit its profits. Support services group Interior Services gained 11.5p to 201p as the company announced plans for a share buyback.

Among companies reporting results, Ryanair gained over 12% to close at 707p after the no-frills airline reported better than expected interim results. Telecom Plus gained 5p to 92p after the company increased its interim dividend to 2p a share from 0.5p last year as first-half profits more than doubled. Shares in Terence Chapman picked up 4.5p to 44.5p on relief that its full-year results did not include any nasty shocks - other than the now standard line that trading conditions are tough.