Traders nervous of rate rise

The odd bright spot in the market today could not disguise an underlying nervousness before Thursday's meeting of the Bank of England's interest rate-setting committee.

Dealers are becoming increasingly concerned that the Bank will opt for a rate rise this week following growing evidence of the strength of the economy. The latest sign of this came this morning from an upbeat housing market report from Hometrack showing prices rose in July for the fourth successive month.

By the close, the FTSE 100 had fallen 46.6 points to 5928.3, a slide accelerated by a weak opening on Wall Street. However, as befits another summer's day, share volumes were light. It seems a far cry from last week's performance, when the market saw its biggest weekly gain since March 2003.

Financials were generally weaker, with HSBC 3p lower at 971p despite the bank reporting a better than expected 18% rise in half year profits.

Property shares were under the cosh on rate rise fears, with Liberty International 28p lower at 1143p and Slough Estates down 16p to 664p.

Sugar group Tate & Lyle was one of the day's big movers, up 18p to 685p. A trade agreement late last week between the US and Mexico on sweeteners could lead to a cut in the Mexican tax on fructose, which would benefit Tate's US business. There is also continuing strong demand for its sucralose and ethanol products, and the current price of sugar on the commodities markets means Tate is likely to make higher profits from its trading business. It recently issued a positive trading statement and has plans for an investor presentation on September 7, which could help sustain the interest in its shares. Broker Evolution has a buy recommendation on the shares, with a two-year price target of 900p. Goldman Sachs was also positive, raising its six-month target from 660p to 700p.

If it's a summer Monday there must be a major firm's shares rising on bid speculation, and today it was the turn of water company Severn Trent. It added 25p to £12.98 on suggestions of a £5bn takeover plan by US private equity groups Kohlberg Kravis Roberts and Apollo Management. The company said it had received no formal or informal offers, and the shares fell back from this morning's best level of £13.53.

Pharmaceuticals group Shire was the largest percentage riser in the FTSE 100, up 23.5p to 863.5p - a 2.8% gain - as UBS told clients to buy the shares.

Positive results from media group Pearson lifted its shares by 7.5p to 727p but the long awaited debut of the merged chemists Alliance Unichem and Boots proved a damp squib. Alliance Boots, as it is now known, saw its shares lose 20.5p to 786p as analysts were underwhelmed. Broker Seymour Pierce repeated its underweight recommendation, while Dresdner Kleinwort said sell and set a 690p price target.

ITV was the day's biggest faller in the FTSE 100, down 2.75p to 97.25p on continuing worries about the weak advertising market, flagging ratings, and speculation over the future of chief executive Charles Allen.

Cadbury Schweppes slipped 2p to 523.5p ahead of Wednesday's half-year results, which should show some of the impact of the recent scare over salmonella in chocolate. Evolution said half-year margins would be hit by higher raw materials costs and sentiment by the salmonella problems, but added that this should provide a buying opportunity since the rest of the business is performing well.

Aero engine maker Rolls-Royce lost 6.25p to 440.75p after Panmure Gordon advised selling the shares. The broker said that after a good Farnborough air show Rolls is looking expensive again, and it is far more exposed to the struggling aircraft maker Airbus than it is to Boeing.

Property group Countrywide fell 2.5p to 422p despite talk of a possible management buyout, but JJB Sports climbed 1.5p to 181.5p on speculation that Mike Ashley, owner of Lillywhites and SportsWorld, had built up a 9.96% stake in the sportswear retailer through contracts for difference. Analysts at Seymour Pierce dismissed the tale, however. They reckoned Ashley could not bid without the support of JJB majority owner Dave Whelan, and also said any link-up between JJB and SportsWorld would run into monopoly problems. With profits set to fall, they told clients to offload stock following the share price rise.

Technology stocks were wanted after higher than expected second quarter profits from Dutch semiconductor equipment maker ASM. Wolfson Microelectronics added 21.25p to 452p, also helped by suggestions an iPhone product was on its way from Apple; Wolfson is a supplier of components to the US company.

Engineering group Invensys added 0.75p to 18.5p ahead of first quarter figures due on Thursday, with analysts expecting more signs of the company's continuing recovery.

But Whitbread fell 5p to 1239p after announcing the expected sale of its 50% stake in Pizza Hut UK for £112m to its US joint venture partner Yum Brands.

Lower down the market, staffing group Corporate Services lost 0.42p to 7.68p despite issuing a statement saying it knew of no reason for the fall. It added that investment fund Active Value no longer had a notifiable stake in the company, and had distributed shares representing around 8.7% directly to the fund's investors.

Distribution group Premier Direct fell 8.5p to 37.5p after warning it was set to make a full year loss. It has just discovered it will need to make "material provisions" in a couple of areas, including reviewing the value of its stocks.

Education group AdVal was 0.25p lower at 0.45p. The company has decided the costs of being listed on AIM are unsustainable and is breaking itself up by selling off its various businesses to various related and unrelated parties.

Full-year results from fuel cell group ITM Power did not impress investors. The shares declined 21.5p to 172p despite a couple of analysts publishing positive notes.

But Spanish based estate agency Medsea Estates added 2.5p to 17p after it signed a deal with Saga, the tour operator for the over-50s, to become its key supplier of overseas homes.

Security company ARC Risk Management climbed 0.1p to 0.825p following share buying by its directors.

To underline the international nature of today's London stock market, two businesses from different parts of the globe began trading their shares. Chinese flue gas desulphurisation business Tinci Holdings closed at 82.5p, up from its 70p placing price, while US pharmaceutical group Napo rose from 83p to 90.5p.

Finally, keep an eye on MTI Wireless Group, a market leader in making flat panel antennae for fixed wireless broadband. Its shares added 4.5p to 42p after revenues for the half year rose 36% and operating profits climbed 61%. The company trades on a price-earnings ratio of less than 10 times, and has net cash representing 12p a share. Traders believe the share price has been hampered by current events in the Middle East, since its parent company is based in Israel. But the present troubles are unlikely to have any practical effect on the company, and the parent operation has seen some stake-building recently, which has pushed its own shares to an all time high on the Tel Aviv stock exchange on takeover hopes. MTI Wireless has also seen a major seller of its shares in the market but this process is now believed to be drawing to a close.