Institutional investors could find nothing to go for yesterday in a London market where base rate hopes have been fulfilled; share prices drifted aimlessly in the general direction of Budget Day, next Tuesday. Although trading volume remained fairly good, business largely focused around company statements and special situations.

London paid little heed to the early firmness on Wall Street, where the Thanksgiving Day holiday is expected to extend until the weekend. After moving erratically through a narrow range, the FT-SE 100 Index closed 2.1 down at 3,067.2. Sentiment appeared to soften in the final minutes after suggestions that Pilkington, the glassmaker, planned to make a rights issue.

The stock market made a slow start, with City workers struggling into their offices against a background of serious disruption of London's underground rail network. In the first hour of trading, interest was largely confined to a batch of share placings among relatively small companies which kept some traders busy without exciting the market.

Blue chip internationals were generally easier, shying away ahead of Wall Street's likely torpor rather than responding to firmness on other European bourses. Pharmaceutical stocks acted as a drag on the market and oil shares lacked decision while the market continued to keep a wary eye on the weakness of global prices for crude oil.

On the domestic front, store and retail issues, the prime beneficiaries from lower interest rates, gave ground as traders waited see if Mr Kenneth Clarke, the UK chancellor of the exchequer, has any unpleasant surprises for them when he delivers his Budget speech.

However, there was activity among the UK television stocks as the government proposed limited changes in rules governing commercial television ownership.

Equity strategists continued to express disappointment that the half-point cut in base rates announced on Tuesday almost certainly rules out another cut in the Budget. 'We had been hoping for one per cent (cut),' commented Mr Robin Aspinall at Panmure Gordon, the UK brokerage house. He pointed out the Bank of England should be more market sensitive than the chancellor, a fact which he thinks will create more avid speculation about rate cuts in the future.

Nervousness over the general outlook for global markets also continued to run high, with London traders responding cautiously to comments on the GATT talks prospects from France. Mr Nicholas Knight, the strongest bull of the London market, told clients that they should 'worry less about US, more about Japan.'

He believes that Wall Street has ridden fairly comfortably through the scare that US interest rates may be about to rise. But he advises selling into any rally in the Japanese market. For the UK, he reiterates the view expressed by many UK strategists that this week's cut in base rates surprised only in its timing and that 'stock prices are going up - period.'

Seaq trading volume, at 567.1m shares, against 667.1m in the previous session, was relatively good but the total was swollen by activity in some of the second-line issues.

On Tuesday, retail, or customer, business recovered from recent weakness to return a value total of Pounds 1.58bn in spite of the turbulence in the market as the base rate cut was digested.

Traded options took centre stage in London's equity derivative dealings yesterday as volumes were boosted by expiry of the November series, writes Peter John.

Equity options turnover represented more than half of the total options volume of just over 56,000 contracts as dealers rolled out their holdings. Royal Insurance with 2,716 lots traded, GEC (2,312 lots), BT (1,805), British Aerospace (1,681), Vodafone (1,310) and Guinness (1,174) all had expiring November series yesterday.

However, the most active stock option - National Power with 3,501 lots dealt - was the result of one very large bearish deal carried out by a leading UK securities house. Dealers said BZW bought 3,500 puts, options giving the right but not the obligation to sell stock at a fixed price and time, expiring in March at 390p. BZW was not available for comment

The out-of-the-money options, priced at 11p and 12p per share and representing 3.5m shares, was seen as representing protection against the stock falling over the next four months. National Power shares slipped 8 to 399p in the underlying market.

Futures trade was very quiet after Tuesday's frenetic trading. The December contract on the Footsie opened up at 3,072 and hit a high of 3,086 in mid-morning. December ticked all the way back to 3,062 by the afternoon but it clawed its way back to 3,070 by the official close, some four points above cash. Volume was a pitiful 7,670 contracts during official dealing.

Elsewhere on Liffe, long gilt futures for December were the most active series with more than 91,000 lots dealt.

Brazilian equities rose by 4.5 per cent in moderate activity on continued 'safe-haven' buying, ahead of possible anti-inflation measures and a drop in interest rates. The Bovespa index of the 48 most active stocks ended at 27,013, up 1,174. Newspaper reports saying that the government had issued a decree aimed at limiting legal objections to future government measures, for example on tax reforms, also provided support.

Wall Street

US share prices firmed slightly across the board yesterday, but trading was subdued ahead of the Thanksgiving holiday break, writes Patrick Harverson in New York.

The Dow Jones Industrial Average closed 13.41 up at 3,687.58. The Standard & Poor's 500 gained 1.33 at 462.36, while the American SE composite was ahead 2.47 at 463.51 and the Nasdaq composite 6.36 higher at 753.18. New York SE volume totalled 230.6m shares.

As on Tuesday, prices opened firmer following early gains in bond prices. At 2pm, when the bond market closed early, the benchmark 30-year bond was up slightly, and the yield had eased to 6.3 per cent.

Bonds have rallied strongly over the past two days, which has helped to alleviate the worries of equity investors. With interest rate concern temporarily shelved, share prices have been able to post modest advances.

Although the day's economic news was mixed, it was positive for equities on balance. Government reports on weekly unemployment insurance claims and October durable goods orders were both moderately bullish, and sustained the recent pattern of statistics revealing a steadily expanding economy. On the debit side, the University of Michigan's consumer sentiment index fell in November. This, however, did not surprise investors. Over the past year, one of the features of the economic situation has been consistently weak consumer sentiment.

While there was some steady buying, trading activity throughout the day was relatively subdued, with many participants winding down their activities as they prepared to leave for the long Thanksgiving weekend.

Technology issues were in favour. Hewlett-Packard moved ahead Dollars 2 1/8 to Dollars 73 5/8 and IBM, which benefited from a ratings upgrade by broking house Smith Barney Shearson, finished Dollars 2 higher at Dollars 55 1/8 . Compaq strengthened Dollars 1 1/2 to Dollars 70 1/4 .

Philip Morris moved up Dollars 5/8 to Dollars 55 1/2 as investors reacted positively to news that the big food and tobacco group is planning a significant corporate restructuring that will involve a large number of plant closures and workforce reductions. The restructuring, plus accounting changes, will force the company to take a charge of Dollars 952m in the fourth quarter.

Auto stocks, hit by selling earlier in the week, rebounded. Chrysler appreciated Dollars 1 5/8 to Dollars 54, Ford Dollars 1 3/8 to Dollars 61 and General Motors Dollars 1 to Dollars 53 3/4 .

Paramount Communications jumped Dollars 3 5/8 to Dollars 80 1/8 after a Delaware court removed 'poison pill' provisions in the company's merger agreement with Viacom. The news raised hopes that rival bidder QVC Network may succeed with its higher offer for Paramount. Viacom advanced Dollars 3 to Dollars 50 3/4 and QVC Network declined Dollars 1 1/8 to Dollars 47 3/4 .

Canada

The Toronto market staged a mild improvement as it shrugged off worries over Ontario's debt ratings and reports that the 1993-94 federal budget deficit may hit a record CDollars 45bn. The TSE 300 index ended 8.1 ahead at 4,223.3 and advances led falls by 379 to 340 after volume of 55.6m shares.

The New Zealand stock market is taking its time to recover from a severe blow received following this month's general elections.

Inspired by opinion polls, it had been expecting the National Party to win handsomely on November 6. The polls had also been predicting a possible continuation of the Westminster style first past the post (FPP) voting system. Businessmen whose identities are still secret had invested millions in a massive advertising campaign which had warned everyone of the dangers of abandoning FPP.

After the election, the initial reaction was that the business community had got the worst of all outcomes. Not only had voters overwhelmingly endorsed the German mixed member proportional (MMP) system, but it seemed as if a minority National government would have to rely on the left wing Alliance Party to govern, creating ongoing uncertainties.

The NZSE-40 index, which had hit a four-year high of 2,203.09 three days before the election, dropped 7.6 per cent to 2,009.89 in the week following the poll, as interest rates soared and the exchange rate dipped.

Ten days later a recount gave National a narrow, one-seat parliamentary majority, but the subsequent rebound in equities was then worn away, partly by weaker offshore markets and some selling by international investors. Yesterday the index staged a minor rally, rising 13.63 to 2,058.43.

A key reason for the listless trading has been Prime Minister Jim Bolger's refusal to confirm whether the hard line reformist finance minister, Ms Ruth Richardson, would be reappointed, or whether her job will be given to the moderate, Mr Wyatt Creech, who is more acceptable to opposition parties in the perilously balanced parliament.

The new cabinet is expected to be announced tomorrow, or on Monday. The business community is divided over how vital Ms Richardson's reappointment will be. It is believed that the new political situation may have removed any scope for further reforms.

However, it is accepted that Ms Richardson is wanted as finance minister by overseas investors. Mr Nigel Hale, the Asian investment director of UK based Invesco, got headlines in the press yesterday by saying that his company would have 'to look at its investments in New Zealand' if Ms Richardson was not reappointed. He said that his fund was full of admiration for what had been achieved by the New Zealand reforms.

The domestic and international uncertainties are tending to obscure positive economic news. Mr Bolger's recent series of meetings with US President Bill Clinton marked an important breakthrough in the eight-year rupture in relations between the two countries over New Zealand's anti-nuclear ships issue, and the meetings are seen as healing the political rift.

Exporters say this will help trade with a key export partner. The latest trade figures, released yesterday, showed a further improvement; the inflation outlook remains low, business confidence is high and statistics show a growth in employment. GDP growth is running at its highest level since 1985.

Most analysts are predicting that corporate profitability, which improved markedly this year, will continue to improve, helped by minimal growth in wages and inflation, and by rising confidence. Most export commodity prices are high, especially sheep meat and forestry.

In the short term the market is expected to be wary of changing sentiment towards equities abroad, especially on Wall Street following substantial US investment in New Zealand shares in recent years. An estimated 35 per cent of the market is now held by US investors, and their attitude to New Zealand recovery is seen as crucial.

Broadly there is confidence that the market is stable at current levels, given the Reserve Bank Act's removal of the setting of monetary policy from politicians, and the outlook for improving corporate profits. New Zealand would be a principal beneficiary from any resolution of the GATT round.

Mr Kevyn Rendell of CS First Boston says that the market may mark time until early next year - when the next round of corporate results are expected to confirm the continuing improvement in business and economic fundamentals which is believed to be occurring.

Arbitrage-linked selling and margin unwinding depressed share prices, and the Nikkei average fell 1.8 per cent to a nine-month low, writes Emiko Terazono in Tokyo.

The Nikkei 225 lost 317.73 at 17,067.11, after setting a day's high of 17,544.85 in the morning and a low in the afternoon of 16,993.90. The Topix index of all first section stocks shed 27.79, or 1.9 per cent, to 1,466.04. In London, later, Mr Nicholas Knight, the Nomura strategist, re-examined his worst case scenario for the Nikkei and revised it down to 12,000.

Equities gained ground in early trading on a rise in the futures market. However, as futures prices lost steam, profit-taking, arbitrage selling and margin unwinding overwhelmed buying by life assurers and tokkin, or specified money trusts.

Traders said life insurers were trying to support the Nikkei above the 17,000 level to sustain their unrealised profits on shareholdings. Meanwhile, corporate investors unloaded stocks to establish profits before share prices fell further.

Volume came to 270m shares, against 284m. Declines led rises by 872 to 158, with 130 issues unchanged. In London, however, the ISE/Nikkei 50 index put on 3.15 at 1,186.62.

East Japan Railway dipped Y4,000 to Y436,000 and Nippon Telegraph and Telephone Y15,000 to Y730,000. Foreign investors sold automobile stocks, and Toyota Motor receded Y30 to Y1,740 and Honda Motor Y70 to Y1,310.

High-technology issues also lost ground, Sony weakening Y100 to Y4,650, Hitachi Y17 to Y773 and NEC Y38 to Y822.

Financials were lower on arbitrage selling linked to the Topix index. Fuji Bank dropped Y110 to Y2,120 and Sumitomo Bank Y130 to Y2,170.

Gas companies, which reported firm earnings after lower fuel costs, thanks to the stronger yen, were among the day's few gainers. Tokyo Gas, which saw its interim pre-tax profits surge by more than 200 per cent, added Y4 at Y470.

Steels rallied after recent heavy selling. Kawasaki Steel put on Y4 at Y317.

Hohsui, a fishing concern, climbed Y80 to Y490 on rumours of a speculative buy recommendation from an unknown source.

In Osaka, the OSE average declined for the third day in a row, falling 298.19 to 19,183.26 in volume of 19.7m shares. Nintendo, the video game maker, lost Y400 to Y6,500.

Roundup

A firmer tone emerged in many Pacific Rim markets after the weakness of the previous two sessions.

HONG KONG saw a halt to its six-day losing streak as the market closed 2.2 per cent higher, buoyed by moderate bargain hunting and futures linked demand as concern eased over the outlook for US interest rates. The Hang Seng index gained 202.04 at 9,238.06.

Hutchison Whampoa surged HKDollars 2.50, or 8.33 per cent, to HKDollars 32.50 amid speculation that the company is planning a convertible bond issue.

AUSTRALIA was supported by bargain hunting, after Tuesday's falls, and an improving futures market and the All Ordinaries index improved 22.8 to 2,032.4 in ADollars 421.9m turnover.

Boral's manufacturing arm, Azon, made its debut at a 12-cent premium to its ADollars 2.00 issue price. It ended at ADollars 2.15.

SEOUL saw waves of strong buying focused on highly capitalised stocks swamp profit-taking in asset situations, taking the composite index forward 11.08 to 828.98.

BANGKOK staged a decisive rebound, spurred by active buying by mutual funds. The market index closed 16.43 higher at 1,321.67 in turnover of Bt12.7bn. SINGAPORE edged ahead, the Straits Times Industrial index firming 4.10 to 2,080.79 and paring Tuesday's 20-point loss.

TAIWAN finished lower on a late wave of selling triggered by news that Hsu Li-nung, a leading member of the ruling Nationalist Party, was defecting to the New Party ahead of Saturday's local government elections.

The weighted index moved narrowly for most of the session but closed 44.87 down at 4,189.88, off a low of 4,177.31.

MANILA was mixed, with profit-takers dominating early trade and bargain hunters coming in during the last hour. The composite index ended 16.40 off at 2,372.40.

KUALA LUMPUR improved after two days of losses, the composite index gaining 3.42 at 970.30.

SHANGHAI's China B shares were hit by profit-taking, while SHENZHEN Bs staged a rebound. The Standard Chartered Securities Shanghai B-share index was 2.76, or 3.7 per cent, lower at 71.23, while the SC Securities Shenzhen B-share index added 1.81, or 2.2 per cent, at 82.71 after the 6.2 per cent decline of the previous two sessions.

KARACHI closed lower on a correction that took the KSE index 10.99 down to 1,704.93 after the sharp rise of the previous month.

Johannesburg tumbled in the process of squaring positions ahead of US Thanksgiving. The golds index fell 75, or 3.9 per cent, to 1,869, industrials 17 to 4,851 and the overall index 48 to 4,176.

In spite of Wall Street's morning gains, bourses tended to close yesterday less hopefully than they began, writes Our Markets Staff.

PARIS was boosted initially by buying on the first day of the monthly account, and by firmer bond futures; but the CAC-40 slipped into negative territory at the close of trading, ending 0.86 lower at 2,070.61 on profit-taking and growing concerns about last-minute GATT negotiations.

Turnover was FFr4.3bn. Euro Disney hit the headlines again, suspended limit down three times during the day before closing FFr6.20, or 18.6 per cent lower at FFr27.20 in volume of nearly 1m shares as the company waited for its banks and its US parent, the Walt Disney Co, to put a restructuring package together.

However, one of Tuesday's casualties, Elf Aquitaine, steadied with a fall of just FFr1.10 to FFr415.60 after a 3.5 per cent drop on a profits warning the day before. In New York, a Prudential Securities analyst upgraded the oil company to buy from hold on the company's longer term attractions.

Among the winners, Societe Generale rose FFr16 to FFr681 after the bank's chairman, Mr Marc Vienot, said that he expected 1993 net profit to rise between 5 and 10 per cent.

MILAN rebounded after the cumulative 5.9 per cent fall of the previous two sessions as the prime minister, Mr Carlo Azeglio Ciampi, sought to calm the political situation by meeting the political parties that have given active and tacit support in parliament.

The Comit index rose 13.83 or 2.7 per cent to 526.27.

Mr Michele Pacitti of NatWest Securities commented that foreign investors were again viewing the market with a little more equanimity, although the situation remained fragile.

Telecommunications issues, sold heavily by foreign investors early in the week, made up some of the lost ground. Sip added L47 to L2,966 and Stet rose L21 to L3,471.

Olivetti climbed L204 or 12.2 per cent to L1,780: news that the list of bidders for Italy's second cellular telephone licence would be announced by December 15 brought renewed speculation that Olivetti could win the lucrative contract.

FRANKFURT had the will to recover but it was unable to sustain it, and the DAX index closed just 2.14 higher at 2,029.55 after an intraday high of 2,045.66 on short covering.

Turnover fell from DM9.2bn to DM7.8bn. Hesse, the first of four western German states to report inflation data, said thatconsumer prices rose by 0.3 per cent in November, the same rate as in October, but slowed to 3.8 per cent for the year from 3.9 per cent; but this news was not striking enough to boost the broad market.

At sector level, carmakers and automotive components suppliers regained some of the losses they sustained earlier in the week, with Daimler up DM8.30 to DM704.80 and Varta, the battery maker, DM7.50 higher at DM334.50. Volkswagen, meanwhile, rose DM7.50 to DM402.50 after compromise seemed possible in the negotiations over a four-day week at the company.

ZURICH ended a volatile day firmer, the SMI index adding 15.7 to 2,717.8.

Nestle finished SFr9 higher at SFr1,179 with its 10 month figures at the low end of some expectations. The bearers rose to a day's high of SFr1,186 in immediate response to higher group sales, but slipped back when details of net debt raised the spectre of a rights issue. Nestle said that it was not planning any capital increase or rights issue, although it might issue a bond, perhaps with an equity content.

AMSTERDAM edged lower, the CBS Tendency index slipping 0.1 to 133.5, with activity restrained ahead of today's US holiday.

KLM, 60 cents higher at Fl 38.10, continued to recoup some of the losses which followed the collapse of the Alcazar talks. KNP BT, the paper and packaging group, dipped 30 cents to Fl 40.20 ahead of its announcement of a Fl 9m third quarter loss.

MADRID blamed foreign investor sales as the general index fell another 2.85 to 294.51. Banks were particularly weak, Santander leading the way down with a fall of Pta240, or 3.6 per cent to Pta6,460.

BRUSSELS closed easier as strikes in six of the nine Belgian provinces kept volume low, and foreign investors cautious. The Bel-20 finished 3.17 lower at 1,384.09, with a general strike planned for tomorrow in protest at government austerity measures.

Written and edited by William Cochrane and Michael Morgan.

------------------------------------------------------------------------ FT-SE ACTUARIES SHARE INDICES ------------------------------------------------------------------------ Nov. 24 THE EUROPEAN SERIES Hourly changes ------------------------------------------------------------------------ Open 10.30 11.00 12.00 FT-SE Eurotrack 100 1334.97 1334.03 1332.82 1332.02 FT-SE Eurotrack 200 1401.06 1399.32 1398.94 1397.84 13.00 14.00 15.00 Close FT-SE Eurotrack 100 1329.57 1326.88 1328.87 1329.41 FT-SE Eurotrack 200 1395.41 1394.51 1394.96 1396.51 ------------------------------------------------------------------------ Nov. 23 Nov. 22 Nov. 19 Nov. 18 Nov. 17 FT-SE Eurotrack 100 1325.47 1331.12 1360.53 1367.52 1363.56 FT-SE Eurotrack 200 1393.67 1396.17 1420.27 1427.61 1423.11 ------------------------------------------------------------------------ Base value 1000 (26/10/90) High/day: 100 - 1334.97; 200 - 1401.06 Low/day: 100 - 1326.72 200 - 1393.92. ------------------------------------------------------------------------

Currency markets had a quiet session as traders squared their books ahead of today's Thanksgiving holiday in the US, and European operators sat back to wait for next Tuesday's UK Budget and Thursday's Bundesbank meeting, writes Conner Middelmann.

Sterling extended Tuesday's climb against the D-Mark by another pfennig, but ran out of steam just below key resistance at DM2.54 and edged back on moderate volume, closing at DM2.5325, after a previous DM2.5275. Against the dollar it ended at Dollars 1.4880, up from Dollars 1.4855.

The pound's rise follows Tuesday's 1/2 percentage point cut in UK base rates. While many market participants are calling for another 1/2 point reduction in coming months, the currency is widely expected to remain underpinned as the UK economy continues its gradual recovery and continental European central banks ease their interest rates more sharply than the UK.

'Many feel we are close to the trough for UK interest rates and the market is confident on lower European rates,' said Mr Adrian Cunningham, senior currency economist at UBS. 'The resulting interest rate differential will favour the pound.'

In the sterling money market, the Bank of England announced an early shortage of some Pounds 750m, later revised to Pounds 650m. The Bank did not operate in the money market throughout the day but provided late assistance of Pounds 255m in the afternoon.

Meanwhile, the Bank of England set a weekly rollover rate for its special money market facility at 5 13/16 per cent. Last week the weekly rollover rate was established at 5 23/32 per cent.

The Italian lira recovered against the D-Mark after hitting a record low of L1,005 on Tuesday. It slid sharply following Sunday's elections which prompted worries over the country's political outlook and its government's ability to pass the 1994 budget.

The lira rose to an intraday high of L986.25 per D-Mark and finished at L988.5, against L994.5 on Tuesday.

'The market has taken a more sanguine view that the 1994 budget will be passed,' said a London currency dealer, who reported heavy institutional lira-buying against D-Marks. 'Towards the L1,000 level there is significant support from medium-term investors, who feel that, once the political concerns have passed after the elections, the lira will appreciate on the back of fundamental factors,' he said.

The French franc firmed slightly against the D-Mark, boosted largely by technical buying after the D-Mark breached psychologically important support at FFr3.4700. It closed at FFr3.468, after FFr3.471 on Tuesday.

However, the Bank of France is not expected to take advantage of its currency's strength to make rate cuts independently of the Bundesbank. Instead, it should continue to use franc strength to rebuild its currency reserves.

The first set of Germany's long-awaited November inflation numbers had little market impact. The consumer price index in the western German state of Hesse rose 0.3 per cent from October but the year-on-year rate slowed to 3.8 per cent. Economists are forecasting a year-on-year rate of around 3.7 per cent.

Two more preliminary inflation reports are due to be released today by the states of North Rhine-Westphalia, Germany's most populous state, and Baden-Wuerttemberg, the second-largest state. Bavaria's data are expected on Friday.

The Bundesbank's allocation of DM82bn of 14-day securities repurchase agreements at a fixed 6.25 per cent bore few surprises and left the rate for German overnight money trading little changed around 6.45 per cent. The central bank added DM12.2bn in liquidity to replace the Paragraph 17 funds it had injected on Monday and rolled over on Tuesday.

Market operators are now looking to next week's round of repos and Thursday's central bank council meeting - the penultimate before the end of the year. In spite of Monday's higher than expected M3 money supply numbers, many market participants are still speculating on another 50 basis-point cut in Germany's official discount and Lombard rates at one of the two meetings set for December 2 and 16.

The Canadian dollar came under pressure over fresh concern regarding the country's federal deficit after a Finance Ministry offical confirmed newspaper reports stating that the 1993/94 federal budget deficit will top CDollars 40bn and could rise as high as CDollars 45bn. Mr Paul Martin, Canada's finance minister, is to provide new projections of the 1993/94 deficit in Montreal next Monday.

The Bank of Canada was rumoured to have intervened to support the Canadian dollar against the US dollar as it weakened past CDollars 1.3300. It closed at CDollars 1.3295, down from CDollars 1.3270 on Tuesday.

The currency showed little reaction to news that the rating agency Standard & Poor's Corp lowered its credit rating for the province of Ontario to double A minus from double A, a move that had been widely discounted.

The US dollar traded erratically in thin volume, rising briefly after the release of strong US durable goods numbers but falling back on position-squaring ahead of the holiday, which many are expected to turn into a four-day weekend. The currency ended at DM1.7025, up from Tuesday's DM1.7010, and at Y108.15, down from Y108.50. It closed in New York at DM1.7023 and Y108.14.

---------------------------------- POUND IN NEW YORK ---------------------------------- Nov 24 Close Prev. close ---------------------------------- Pound spot 1.4885 1.4855 1 mth 1.4855 1.4823 3 mth 1.4811 1.4780 1 yr 1.4670 1.4636 ----------------------------------

Malachi Yosi is a worried man. Not far from his clean, modern nursery in the new Moshav settlement of Ein Habesor in the western Negev is the Gaza Strip - full of fertile soil, citrus orchards, plastic covered greenhouses and competent farmers impatiently awaiting the dawn of unrestricted trade with all its neighbours.

Until the intifada uprising in 1987 made it too hazardous to be dependent on the regular arrival of Palestinians from across the border, 90 per cent of the 60-odd workers in Mr Yosi's company were Palestinians. Now they comprise less than a third.

With surplus labour from large families earning much lower wages, Gazan farmers can produce high quality fruit and vegetables at half the cost of their Israeli counterparts. While Israel controlled Gazan trade that did not much matter. But free trade is now an imminent prospect. Hence Mr Yosi's furrowed brow.

International money is about to pour into the Gaza Strip, said to be the world's most densely populated region.

And it will be liberally aided by its erstwhile conquerors. However worried Israel's farmers may be about competition, Israel's rulers are far more concerned to get the stricken Gazan economy on its feet and thriving as soon as possible. Not only is this seen as the soundest insurance against extremists: it is also in Israel's interests to channel Gaza's output of intensively-grown produce into export markets. This means not merely encouraging the most up-to-date production techniques in an industry already advanced well beyond its Arab neighbours, but creating a marketing apparatus and export facilities, which at present barely exist, save by courtesy of Israel's own sophisticated export-orientated system.

Professor Avi Nachmias is the man nominated to head a group of Israeli and Palestinian experts to help expand and modernise Gaza's agricultural infrastructure, as part of a wider rehabilitation scheme.

Head of one of the research stations run by Israel's Volcani Institute, the state's highly regarded agricultural research organisation, Prof Nachmias knows how interlocked Gaza's economy is with Israel's. 'We want them to export so that they don't undermine Israeli markets,' he says.

'We hope to get joint enterprises going, because Gaza is dependent on Israel for drinking water, electricity, transport to the West Bank, export facilities. . . Its agriculture is totally based on the Israeli economy - their seeds and irrigation systems, for example.'

How close that connection already is can be seen from the fact that strawberries grown in Gaza account for over 60 per cent of those exported under the Israeli Carmel label. Here you have Palestinian production expertise, involving use of the most modern irrigation techniques, plant varieties and production methods, linked to an Israeli component comprising forwarding, air freight and established marketing services.

Mr Ezra Sadan, one of Israel's most outspoken and influential economists, a former director-general of agriculture and now head of the Volcani, is scathing about the effect of the restrictive licensing system Israel has so far operated to limit competition from Gazan enterprises, notably in textiles, and is confident that free trade, by giving the Palestinians access to a a market 30 times its present size, will also generate more joint enterprises with Israel.

Gaza's agriculture has been changing, largely because of growing salinity in the citrus groves (because of substantial over-pumping from the shallow coastal aquifer) and the fact that population growth has outstripped the rate of water replenishment. Together with the depressed prices for oranges in world markets, this has forced Gazan farmers into concentrating on high value, water-economical crops, creating what Mr Sadan recently described as 'an utterly modern horticultural industry'. In 1991 this comprised 400 hectares of greenhouses (Israel has 2,500 ha) and 700 ha of plastic tunnels. They represented an investment of between Dollars 30m and Dollars 40m divided among several hundred families.

The horticultural industry is well poised to attack markets in northern Europe and throughout the Middle East. In mid- October the first (official) convoy of 17 produce-laden lorries crossed from Gaza through the West Bank en route to Dubai: a harbinger of a potentially booming trade.

For Israel as a whole, with less than 3 per cent of its population now directly involved in farming or horticulture, the liberalisation of trade with Gaza is unlikely to have any serious economic impact. For people like Malachi Yosi, however, a frisson of apprehension is understandable. Nevertheless, the more speedily Israel and the West can help promote Gaza's ravaged economy and raise its living standards, and wages, the less painful will be this modest price for peace.

The Organisation of Petroleum Exporting Countries last night brushed aside demands that it cut its production level to boost prices. Its failure to do so is likely to lead to greater short-term volatility in international oil markets.

Opec officials conceded that the strategy of sticking to its present output ceiling of 24.52m barrels a day could lead to further price falls when markets open today.

The communique issued after the meeting said, however, that the agreement reached in Geneva in September was 'reasonable and objective' and should be given 'the necessary time to achieve its goals'.

It also called for restraint and strict adherence to the accord. The communique said that 'all producers should join in the effort' to balance supply and demand.

Brent Blend, the benchmark crude, closed at Dollars 15.33 per barrel for January delivery compared with Dollars 15.59 on Tuesday and Dollars 15.88 on Monday prior to the conference. Traders took a gloomy view of the outcome of the meeting before it ended last night.

Mr Subroto, Opec's secretary-general, told a news conference at the end of the talks that ministers concluded that a small output cut would not be effective and a large cut would have been hard to achieve.

He expected prices to decline initially but then recover.

There was no immediate comment from Saudi Arabia on the meeting's outcome.

Mr Ali Ahmed al Baghli, Kuwait's minister of oil, said he was happy with the accord.

The Opec decision followed several weeks of mounting pressure on the organisation as prices steadily weakened because of low demand in the main oil consuming countries, especially in Europe and Japan. The perception among refiners and traders that supplies are plentiful also helped to push prices lower.

Several Opec members, including Iran, had called for a cut as the price of the Opec basket of six crude oils fell.

An Opec delegate said moves to organise support for a 2 per cent cut in production failed because it was considered too small to have an impact on the price. He said there were also doubts that all members would abide by a cut.

As for a larger reduction which some analysts said was necessary to prop up prices, the delegate said: 'No one was in favour of a 1m barrel a day cut,' although he conceded that a cut of such magnitude would have had a positive influence on prices.

The ministers also castigated non-Opec producers, including the UK and Norway, for boosting output.

Four weeks after acquiring the UK's sole lead-zinc smelter, at Avonmouth, for ADollars 107m, MIM Holdings, the Australian resources group, is calling for a 19 per cent cut in the workforce, changes in working practices and increased metal production.

However, employees were assured yesterday that, although the European zinc industry is discussing the co-ordinated closure of a smelter, MIM had no intention of shutting Avonmouth.

Mr Alan Pugh, managing director of Mount Isa Holdings (UK), said the new management wanted to lift annual production from Avonmouth to 120,000 tonnes of zinc. The rated capacity of the plant was only 105,000 tonnes but recently it had operated at an annual rate of 111,000 tonnes, he said. Lead production is to be boosted from 45,000 to 55,000 tonnes a year.

MIM, which bought the plant from Pasminco, another Australian company, has started consultations with the unions and is asking for at least 115 volunteers for redundancy from the present workforce of 610.

Mr Pugh said that about 40 per cent of the redundancies would be among managerial, supervisory and support staff.

The remaining employees would be asked to adopt more flexible working practices 'to match the best in British industry'.

Increased productivity and extra metal production should improve operating profit by Pounds 7.5m 'to lift Avonmouth from a position of marginal profit to a world-class, low-cost producer of high quality zinc and lead that provides an acceptable return on investment'.

Analysts suggested that Avonmouth was safe from closure once MIM took it over.

The smelter uses the ISP (Imperial Smelting Process) technology, which has the capability to process complex feedstocks, including the mixed zinc and lead concentrate to be produced from 1995 at MIM's 70 per cent-owned McArthur River project in the Northern Territory of Australia.

Over a quarter of the 4,000 breeds of animals used for food and agriculture are in danger of becoming extinct, warns a report by the Food and Agriculture Organisation of the United Nations.

If only 5 per cent of the breeds are being lost every year says the FAO, 'the average loss could be about one breed a week'.

The most endangered species are in Europe, says the report. Breeds under threat include the Regina cattle, in northern Italy, whose milk produces Parmesan cheese, the North Ronaldsay sheep of the Orkney islands that survive on seaweed, and the Yakut cattle of northern Siberia.

'A large number of European breeds are under threat because of their perceived lack of economic competitiveness,' says the FAO.

It classifies breeds as endangered if there are 1,000 or less breeding females or less than 20 breeding males. Natural disasters, wars and indiscriminate cross-breeding are important causes for the extinction of breeds, it says.

In Asia and the Pacific, the report details 51 breeds at risk, including the Min Pig, which his highly prolific and disease-resistant and capable of surviving in low temperatures, and Javanese Zebu cattle, a breed described as 'highly fertile, hardy and resistant to tick-infestation'.

Breeds at risk in North America include Florida Cracker cattle, one of the first to enter the United States, and the Imperial Sheep, which is capable of breeding almost all the year round. In Latin America, the Canastra pig, of Brazil, is said to be at risk and also the Blanco Orejinegro cattle, of Colombia.

'Much of the genetic base of indigenous breeds is being eroded by 'grading up' with exotics,' says the FAO.

Animal production contributes about 30 per cent to the total value of food and agriculture and diversity of farm animals is vital for food production for future generations, the report points out.

It suggests that breeds should be regularly monitored and incentives given to encourage their use and maintenance.

The World Watch List for Domestic Animal Diversity, FAO, Via delle Terme di Caracalla, Rome, Italy.

More than USDollars 250m will be spent over eight years on a gold mine in the newly-independent republic of Uzbekistan, once part of the former Soviet Union, Lonrho, the UK-based conglomerate, announced yesterday. Lonrho will develop the mine jointly with two Uzbek government-owned companies.

Mining is scheduled to start early in 1996 at an initial annual rate of 320,000 troy ounces, increasing after about four years to full production of 480,000 ounces. The first phase would cost Amantaytau Goldfields, set up to develop the mine, Dollars 100m. Lonrho would contribute about Dollars 30m and the International Finance Corporation, the private sector investment arm of the World Bank, Dollars 5m.

Lonrho gave a strong hint that bacteria might be used to produce the Uzbek gold. The group's 45-per-cent-owned associate, Ashanti Goldfields in Ghana, is at present installing the world's biggest biological oxidation plant, using technology developed by Gencor of South Africa. This will use a naturally-occuring bacteria, thiobacillus ferro-oxidans, to release gold from difficult ores instead of employing heat and pressure vessels.

Lonrho said tests carried out so far indicated that the Uzbek ores were particularly amenable to biological oxidation. The process was particularly attractive because it would not leave any harmful soluble materials in the waste to damage the delicate desert ecology - the proposed mine will be in the Kyzylkum desert, about 560km north-west of Tashkent.

Other finance for the project will come from the European Bank for Reconstruction and Development. The UK Know-How Fund helped to finance a pre-feasibility study.

Liverpool - Spot and shipment sales amounted to 60 tonnes for the week ended November 19, against 36 tonnes in the previous week. Subdued offtake did not bring many operations. Support was forthcoming in certain specialist styles, notably in the Syrian range.

The latest batch of west German regional inflation figures provided the main focus of attention for the European government bond markets yesterday as market participants were anxious to see whether they would provide the Bundesbank with an excuse to lower key interest rates next month.

German government bonds ended little changed, with the release of the cost-of-living figure for the state of Hesse providing the main highlight of the day.

The cost of living rose 0.3 per cent in the month to mid-November, giving a year-on-year increase of 3.8 per cent which was in line with market expectations, dealers said.

The other west German states of Baden-Wurttemberg, North Rhine-Westphalia, and Bavaria are due to report their cost-of-living data over the next few days.

Consumer prices for western Germany are expected to climb about 3.7 per cent in November from a year earlier, down from the October figure of 3.9 per cent. Some market participants believe this would enable the Bundesbank to cut its key Lombard and discount rates in December - in spite of the higher-than-expected money supply figures for October which came out this week.

At its repo, the Bundesbank added a net DM12.2bn to the banking system. The funds were allotted at a fixed rate of 6.25 per cent, down from 6.29 per cent the previous week.

Italian government bond prices bounced back again, with prices rising across the yield curve and making up for some of the ground lost earlier in the week.

Dealers said long-dated bonds outperformed the short end of the market, with the 10-year yield spread over three-year bonds moving to around 30 basis points, compared with about 55-60 basis points a week ago. Traders reported some selling out of Asia Pacific yesterday, particularly in the three-to-five year area, but said some semblance of calm had been restored to the market when it appeared unlikely that approval of the 1994 budget would be jeopardised by the recent political upsets.

Long-dated UK government bonds continued to benefit from the positive sentiment about the low inflation background yesterday, while short-dated issues drifted lower as investors ruled out the prospect of another interest rate cut in the immediate future.

After the excitement of Tuesday's half-point cut in the base rate - which prompted a flurry of activity - the gilt market experienced a somewhat calmer trading session yesterday.

Short-dated stocks closed about 1/8 point lower while long-dated issues gained nearly 1/4 point, helped by extension trades. The moves resulted in a flattening of the gilt yield curve.

US Treasury prices ended little changed in light trading yesterday in the wake of some mixed economic news.

The benchmark 30-year government bond closed 1/16 higher at 99 7/32 , yielding 6.303 per cent. At the short end of the market, the two-year note was unchanged at 100 3/32 , to yield 4.184 per cent.

After Tuesday's big rally, investors and dealers set about consolidating their gains from the opening.

There was some nervousness that a round of strong economic data would spark off fresh selling, but fortunately yesterday's news on the economy was not consistent enough to drive the market lower. Although durable goods orders rose 2.0 per cent in October - the third consecutive monthly gain - weekly jobless claims came in weaker than expected, and the University of Michigan's consumer sentiment index showed a decline from 82.7 in October to 81.2 in November.

Japanese government bond prices ended mixed with the yield curve steepening sharply in the four to 10-year area.

Continued weakness in the Japanese stock market helped to support prices at the short end of the bond market. Money market prices edged lower as yesterday's fall in share prices once again revived hopes that the Bank of Japan will cut interest rates.

Most borrowers consider distribution capacity the top priority in selecting an underwriter for Eurobond issues, according to a survey by IFR. Next in importance are new issue pricing, secondary market support and impartiality. However, the survey belies protests by underwriters that league tables are not important: 51 per cent of respondents ranked position in league tables either second or third on a scale of one to six.

In the Eurodollar bond market, Goldman Sachs is the top underwriter, with perceived strength in generating new ideas and giving impartial advice.

In the sterling Eurobond market, UBS and CS First Boston topped the table. Only two UK houses, Barclays de Zoete Wedd and SG Warburg, made it to the top five. Borrowers said they received a better service in sectors which were open to competition from foreign banks.

Borrowers Survey '93; published by IFR Research, 11 New Fetter Lane, London EC4A 1JN.

Swift, the electronic network owned by 2,000 banks, yesterday responded to growing competition to handle cross-border payments by announcing a 20 per cent rebate for its customers this year, and a 16 per cent price cut for 1994.

Swift, which passes payment and settlement messages between banks over an electronic network run from Brussels, said the price cuts would save customers BFr1.5bn next year and reduce the minimum message tariff to BFr6.

The price cuts come at the end of a year in which several consortia of banks have disclosed plans to provide customers with cheaper and faster cross-border payments. Visa, the credit card group, is piloting a new system.

Mr Leonard Schrank, Swift's chief executive, said it was cutting prices because it faced increasing competition.

Mr Schrank said Swift was facing competition not only from some of its member banks but from card companies and European telecommunication companies. 'We will not be the lowest cost producer, but we will lower,' he said.

Swift was founded in 1973 to transfer to an electronic network standard bank transactions which had been carried out by telex and other methods until then. It comprises both a data network, and a standard method of communicating.

The number of electronic messages carried by Swift this year rose by 12 per cent, partly because of the turbulence in currency markets. The network provides foreign exchange matching and netting among settlement services. Some competitors have argued that Swift charges too much for data transfer because its cost base is excessive. The network employs 1,100 people in 93 countries.

Among the systems now competing to transfer small payments across borders is Ibos, the system run by Royal Bank of Scotland, Banco Santander, Credit Commercial de France and Banco de Comercio e Industria in Portugal.

Standard & Poor's surprised the market yesterday when it cut the long-term debt ratings of the province of Ontario and Ontario Hydro to double-A minus from double-A.

Yield spreads on Eurobonds issued by Ontario had tightened over the last week in the hope that S&P would not cut the province's rating, which had been placed on CreditWatch with negative implications on October 4.

S&P said the downgrade reflected the weakened resolve of the Ontario government to take unpopular expenditure adjustments in order to meet its deficit targets in 1993-94 in the face of unexpected revenue deterioration. The move reflected S&P's view that deficit targets for succeeding years outlined in the province's medium-term plan would be missed. S&P removed Ontario's rating from CreditWatch yesterday and said that the rating outlook was stable.

Yield spreads on Ontario's Eurobonds widened by a couple of basis points after the news broke. However, traders said that the news had removed the uncertainty which had been hanging over the market.

S&P's move allows Ontario to break its self-imposed exile from the Eurobond market. Syndicate managers expect the province to launch a long-dated Eurodollar offering in the near future.

There was speculation that Ontario might consider a Eurobond offering in the D-Mark sector now that international sanctions against South Africa had been lifted. Canadian issuers shunned the D-Mark sector while the sanctions were in force because of the German banks' links with South Africa.

Elsewhere, Henderson Land, the Hong Kong property developer, raised Dollars 300m through a widely-expected offering of five-year Eurobonds. The bonds, which were priced to yield 95 basis points over US Treasuries, had a mixed reception. Some syndicate managers said the bonds looked expensive when compared with the borrower's offering of three-year convertible Eurobonds.

If Henderson Land does not proceed with the public sale of shares in Henderson China within three years, the bonds will yield 6.6 per cent to maturity. This represents a yield spread over US Treasuries of about 260 basis points.

Lead manager Goldman Sachs said the bonds were priced in line with yield spreads on bonds issued by Hong Kong corporate borrowers. Goldman said a good portion of the bonds had been sold yesterday, with about 65 per cent being placed in Asia Pacific. The bonds remained in syndicate overnight.

Sociedad Comercial del Plata of Argentina plans to launch a Dollars 100m, five-year Eurobond issue on Monday with a spread of between 340 and 380 basis points over US Treasuries, lead manager Paribas said yesterday.

The launch depends on gaining the expected permission from the Argentine securities commission. The company - a conglomerate mainly involved in public services, energy and construction - aims to use the issue to pay off short-term debt incurred during its purchases of stakes in Argentine utilities during the privatisation process.

Motor-Columbus, the Swiss energy and telecommunications group, said yesterday it had sold its stake in IDB Communications Group at Dollars 45 per share for a total of Dollars 400m, Reuter reports from Baden.

The company said it had succeeded in placing the stake but did not say with whom. It had announced the decision to sell the holding, some 6m shares, in October.

Mr Michael Jackson, the American pop singer facing legal and personal difficulties, has agreed an estimated Dollars 250m deal under which EMI would administer his music-publishing empire.

Mr Jackson's music-publishing operation, ATV, owns the rights to more than 4,000 songs.

Under the terms of agreement announced yesterday, EMI Music Publishing would pay Dollars 100m in cash to Mr Jackson for the right to manage the song catalogue for five years.

Over that period, the singer is expected to accrue an additional Dollars 150m in royalties, which are generated when recordings of the songs are sold or played on radio and television. Mr Jackson would receive 92.5 per cent of all proceeds, with the remainder allotted to EMI, part of Thorn-EMI, the London-based entertainment group.

EMI is expected to raise Dollars 200m to fund copyright acquisitions for ATV, according to Mr John Branca, an lawyer who represents Mr Jackson.

Mr Jackson faces allegations that he sexually molested a 13-year-old boy. Last week, he cancelled the remainder of a world tour and admitted he was addicted to pain killers.

The EMI deal represents a reprise for the company, which administered the catalogue when the singer acquired it in 1985. For the past five years, the business was managed by MCA.

A separate company, Mijac Music, owns the rights to Mr Jackson's own compositions and is not included in the EMI deal.

Fujitsu of Japan is to acquire HaL Computer Systems, a California company that is developing high performance open systems computers. Previously, Fujistu held a 44 per cent stake in the US company.

HaL will become a wholly-owned subsidiary of Fujitsu and serve as the principal development centre for advanced 64-bit open systems hardware and for operating systems products for the Fujitsu group of companies.

'This agreement is good for Fujitsu and HaL's employees because HaL now assumes an expanded development responsibility with greater importance to Fujitsu's open systems strategy,' said Mr Scott Metcalf, president of HaL.

Fujitsu also announced it had signed a contract with Dell Computer to market Dell's personal computers to corporate clients in Japan.

Dell said the move was intended to broaden the company's reach in Japan, where it has a sales force of only 30 people. Under the agreement, PFU, a unit of Fujitsu, will also provide service and support for Dell computers in Japan.

Mr Paul Allen, Microsoft co-founder, added to his high-technology portfolio by buying part of Virtual Vision, a company that makes what it calls 'personal viewing systems', Reuter reports from Washington.

Royal Bank of Canada is to cut 4,100 jobs, about 8 per cent of its workforce to improve competitiveness and integrate the recently-acquired operations of Royal Trust.

The bank, Canada's biggest financial institution, said about 3,000 jobs will be cut from its own payroll but Royal Trust will be more heavily hit relative to its size, with more than one in five jobs being lost.

RBC plans to close more than a third of the trust company's 142 branches. RBC acquired Royal Trust, formerly controlled by the Toronto branch of the Bronfman family, mainly to gain a strong foothold in fiduciary services on the heels of regulatory reforms last year.

Wacoal, Japan's leading manufacturer of women's underwear, saw firm interim profits due to rationalisation of sales and advertising costs, but lower sales due to sluggish demand for nightwear and sportswear.

The company posted a 5.1 per cent rise to Y6.6bn (Dollars 60m) in pre-tax profits for the six months to September. Sales slipped by 1.7 per cent to Y65bn, but after-tax profits rose by 14.4 per cent to Y3.5bn.

Underwear sales rose by 4.8 per cent to Y49.8bn but nightwear sales fell by 12 per cent to Y6.1bn and outerwear and sportswear sales dropped by 25.6 per cent to Y3.6bn.

Wacoal said better trading profits offset a fall in interest income due to lower interest rates. After-tax profits were boosted by special gains of Y803m on the sale of securities holdings.

The company expects continued sluggish demand during the second half, and foresees a 2.3 per cent decline in full-year pre-tax profits to Y10.3bn on sales up 0.4 per cent to Y128bn. After-tax profit is forecast to rise by 2.1 per cent to Y5.2bn.

Stet, the Italian state-owned telecom utility, and its consortium partner Bell Atlantic, the US regional operator, have entered the leading first-round bid in Hungary's telecom privatisation tender.

Stet International and Bell Atlantic are believed to have offered between Dollars 800m and Dollars 850m for the 30 per cent shareholding in Matav, the Hungarian national operator, in eastern Europe's largest single privatisation so far.

The figure comfortably betters submissions made by two groups regarded as the strongest contenders in the sale.

Deutsche Telekom of Germany, in alliance with the UK's Cable & Wireless and regional Bell company Ameritech, is understood to have bid Dollars 420m-Dollars 500m. France Telecom, linked with US West, another Baby Bell, is thought to have offered over Dollars 450m.

The German and French-led proposals also lag behind that of Telefonica of Spain, the fourth competitor to be shortlisted, although estimates of Telefonica's bid vary.

None of the groups would officially confirm the figures. Advisers also warned that consortium bids were 'apples and pears' and not wholly comparable. Stet in particular worked on the assumption that Matav will continue to dominate local telephone services.

Stet's lead in the first round of preliminary, 'indicative' bids is no reliable guide to the outcome of the second and decisive phase. Final bids are due on December 14 and the Budapest authorities hope to complete the transaction by the end of the year.

The European Bank for Reconstruction and Development and the World Bank's International Finance Corporation are to invest a combined Dollars 90m in Matav.

Finmeccanica, the Italian state-controlled engineering group, yesterday completed the second of two cash-raising exercises by placing 40 per cent of its Union Switch & Signal subsidiary in the US.

US&S was bought by Finmeccanica's quoted Ansaldo Trasporti unit in 1988 to broaden its coverage of the railway equipment and signalling business.

The flotation, raising almost Dollars 49m through the sale of 3.25m shares at Dollars 15 each, will give Ansaldo a Dollars 30m boost via a special one-off dividend. The remaining proceeds will be used to reduce US&S's short-term debt.

Yesterday's transaction echoes last week's US initial public offering of Finmeccanica's Elsag Bailey Process Automation subsidiary.

The transaction involved the flotation of 8.12m shares at Dollars 19 each, raising more than Dollars 150m.

About 35 per cent of the total share capital was placed, with an option to sell a further 5 per cent. The proceeds will be used to cut debt at both Elsag Bailey and the Finmeccanica parent company.

Both deals are part of a rapid income raising drive by Finmeccanica, which is facing a depressing year because of the recession and heavy losses at its Alenia aerospace subsidiary.

Finmeccanica announced a first half pre-tax loss of L159.9bn (Dollars 94.5m), against net profits of L180.5bn in 1992. Analysts say the group should reach break-even in the full year, boosted by the extraordinary receipts from this month's two US transactions.

Canada's competition watchdog yesterday removed a key obstacle to the proposed alliance between Canadian Airlines International and American Airlines by allowing the Canadian carrier to pull out of a computerised reservations system which it shares with Air Canada, its chief rival.

The competition tribunal gave the airlines a last opportunity to negotiate the dissolution of their partnership in the Gemini network. But if they fail to agree by December 8, a procedure spelt out by the tribunal will be applied.

Under this arrangement, the partnership would be terminated in November 1994. Covia, a unit of United Airlines, is also a shareholder in Gemini.

AMR, American Airlines' parent company, has proposed injecting CDollars 246m into Canadian, in return for a one-third equity stake. A key condition of the deal is that Canadian move from the Gemini reservation system to AMR's Sabre network.

Air Canada and Covia have strongly resisted Canadian's efforts to withdraw from Gemini, arguing that such a move would leave Sabre with a virtual monopoly of Canadian airline reservations. As an alternative to the AMR deal, Air Canada has proposed buying Canadian's overseas routes and leaving the Calgary-based airline as an exclusively North American carrier.

The Hongkong and Shanghai Banking Corporation, the principal subsidiary of HSBC Holdings, is raising HKDollars 3bn (USDollars 388m) through a 10-year 'collared' floating-rate note issue in its first external fundraising since 1986.

The notes will pay interest equal to 25 basis points above three-month Hong Kong interbank offered rate, subject to a minimum rate of 7 per cent and a maximum of 9 per cent.

Analysts said the terms appeared expensive for a bank of Hongkong Bank's quality in the market but it is understood that Wardley, which is arranging the issue, has developed a mechanism for hedging the 7 per cent to 9 per cent collar which will provide the bank with attractive Hibor-related funding over its life.

The bank said the proceeds of the bond issue will be used to develop and expand its business, pointing to planned infrastructure projects, in Hong Kong, such as the building of an airport and the expansion of the colony's container port.

The bond is redeemable in six years. Its worth to the bank as capital, however, will diminish when the bond is five years old, when the bank will have to begin to amortise 20 per cent of the bond a year.

Ryder System, the Florida-based transportation company, announced terms for the spin-off of its aviation business, creating a new company with assets of around Dollars 1bn and sales in 1992 of Dollars 1.2bn.

The completion of the divestment plan, first announced in June, pushed the company's shares company up Dollars 1 to Dollars 28 1/4 yesterday.

Shareholders in Ryder will be given one share in the new company, Aviall, for each four Ryder shares they already own in a tax-free distribution beginning on December 14.

The move will enable both Aviall and the continuing Ryder business to concentrate on their respective businesses. Aviall, which made net profits last year of Dollars 20m out of the group's total of Dollars 118m, claims to be the world's largest independent aviation repair and parts distribution company.

NCR, the computer subsidiary of AT&T, yesterday unveiled details of a redundancy programme to reduce its worldwide workforce by 12 to 15 per cent.

The company said it would take unspecified charges to cover the redundancies in the first quarter of next year.

NCR said it was offering voluntary severance incentives to US employees who agreed to leave the company by the end of January.

Of the approximately 27,000 NCR employees in the US, about 25,000 are eligible for voluntary separation and 5,500 for early retirement.

Mr Jerre Stead, NCR chairman and chief executive, said the company recently announced a new, customer-focused business model, which called for fewer layers of management between NCR and its customers.

Mr Paul Allen, Microsoft co-founder, added to his high-technology portfolio by buying part of a company that makes what it calls 'personal viewing systems', Reuter reports from Washington.

Allen's Vulcan Ventures investment group has become the second-largest investor in Virtual Vision. Privately held Virtual Vision is funded by 'a group of silent investors who represent a wide range of industries in the Pacific Northwest,' the company said.

Its chief product is a device that looks like a pair of eyeglasses but projects a full-screen colour video image several feet in front of the user.

Proton, the Malaysian car manufacturer, has announced pre-tax profits for the six months to September 30 1993 of MDollars 135m (USDollars 52.9m), compared with MDollars 130m a year ago.

Turnover rose substantially to MDollars 1.36bn, compared with MDollars 908m previously. This was mainly due to high demand for a new model launched on the home market in mid-year.

Analysts said that the marginal rise in profit was due to the increased cost of imported parts. Proton cars are manufactured in partnership with Mitsubishi of Japan, and the company has suffered from the appreciation of the yen.

Proton has a 70 per cent share of the domestic market and is seeking to increase exports, particularly to Europe. It expects an improved performance in the second half of the financial year.

Unilever and Procter & Gamble, champions of soaps and detergents markets around the world, are preparing to do battle in a country with 880m potential consumers. Not far behind them are other multinationals, including Henkel and Benckiser of Germany and Kao of Japan.

Even two years ago, the prospects of the world's largest soaps and detergents makers buying control of local competitors in India would have been unthinkable. Now, economic liberalisation is freeing companies to fight for a market, which is already worth Rs23bn (Dollars 733m) and is growing at an annual average of 10 per cent.

Mr Sushim Datta, chairman of Hindustan Lever - the Indian affiliate of Unilever, the Anglo-Dutch combine - says that competition is all set to intensify. 'There's going to be a fierce battle for shelf space.'

Unilever, which has been operating in India since before independence in 1947, is buying control of the Tata Oil Mills Company (Tomco), the 75-year-old soaps and detergents company of the Tata group. In March, the boards of the two companies approved the merger of Tomco with Hindustan Lever which has annual turnover of Rs20bn, two-thirds of it in detergents.

P&G, a relative newcomer to India, last December struck a deal with Godrej Soaps, a privately-owned manufacturer with annual sales of Rs5bn. They formed P&G Godrej, a joint venture in which P&G took a 51 per cent stake. Mr Adi Godrej, chairman of the new company, says joining forces made sense because 'a major competitor is a partner now.'

By buying out strong home-grown brands, Unilever and P&G have deftly eliminated local competition and acquired wide-ranging distribution networks.

The partnership with Tomco gives Hindustan Lever a considerable presence in the market, with an overall share of 26 per cent in volume terms. In toilet soaps, with the addition of Tomco's soaps to its own best-selling brands, Hindustan Lever now has a 70 per cent market share. The Monopolies and Restrictive Trade Practices Commission is examining claims that the merger would make the multinational an over-dominant force in the market.

For P&G, the corporate matchmaking is even more significant. Before signing up with Godrej, P&G's presence in India was limited to one product - Ariel, an enzyme-based detergent concentrate powder which was launched two years ago. P&G's range now includes Godrej's detergents and soaps that collectively have a 10 per cent market share. P&G has also bought into Godrej's distribution system and has gained access to Indian soap technology. This is based on vegetable oils rather than animal fats, which are extensively used elsewhere in the world but which are taboo in India.

Ever since Lever earlier this year introduced Surf Ultra in response to Ariel, a squabble has broken out between the two companies, which has included allegations of false advertising claims and unfair selling tactics.

The concentrated powder segment that they have been quarrelling over is tiny - less than 2 per cent of the total detergent market. Hindustan Lever's general sales manager, Mr Rajendra Aneja, calls it 'a battle in sheer futility . . . it's more a prestige issue'. Selling Ariel has been a strain on P&G's bottom line; in the last two years the company has suffered accumulated net losses of Rs210m.

Lever and P&G also have others to worry about: Germany's Henkel has a joint venture with Southern Petrochemical Industries; Benckiser, also German, has an office in Delhi; and Kao, the Japanese group, is eyeing the Indian market.

For Indian consumers, it means a belated range of choice - not to mention a dazzling display of marketing from some of the top consumer products companies.

Japan's electric power utilities were hit by a fall in demand for air conditioning due to the cold summer and the economic slump.

Lower fuel costs, due to the stronger yen and a fall in crude oil prices, could not cover the decline in revenue from lower electricity demand, and eight of the nine electric power companies posted lower interim parent pre-tax profits for the half-year to September.

In spite of strong opposition from the utilities, the government has ordered electricity and gas rates to be cut in order to pass on the benefits of the higher yen to consumers. As a result, the electric power companies will lower rates for an 11-month period starting this month, and face a drop in income for the full year.

Tokyo Electric Power said total power consumption for the April-September period fell 0.7 per cent from a year earlier, depressing revenue from electricity sales. For the full year, the company expects a 14.8 per cent fall in pre-tax profits to Y135bn, on a 0.2 per cent rise in sales to Y4,710bn. The company expects the rate cuts to reduce its income by Y36bn.

Kansai Electric Power said sharp increases in repair-related spending and depreciation costs also squeezed profits. The company expects full year pre-tax profits to fall 19 per cent to Y100bn on a 0.1 per cent rise in sales to Y2,370bn.

Chubu Electric Power said its decline in pre-tax profit was due to a heavier interest burden from increased capital investments. For the full year to March, the company expects a 26 per cent drop in pre-tax profits to Y75bn on a 0.6 per cent fall in sales to Y1,950bn.

Kyushu Electric Power saw profits fall for the first time in three years due to typhoons and heavy rains. The company, which spent Y28.4bn on repairs, sees an 8 per cent fall in full year pre-tax profits to Y76bn on a 1.4 per cent rise in sales to Y1,280bn.

----------------------------------------------------- INTERIM RESULTS 1993-94 ----------------------------------------------------- Sales Change Pre-tax Change (Ybn) (%) profit (%) ----------------------------------------------------- Tokyo 2,347.1 -0.1 58.5 -12.0 Kansai 1,205.7 +0.1 49.1 -3.7 Chubu 985.4 0.0 38.6 -15.4 Kyushu 651.9 +1.5 28.1 -6.7 Tohoku 651.2 +2.7 29.8 -0.6 Chugoku 487.4 -0.6 21.3 -4.1 Hokkaido 265.6 +5.6 26.7 +58.1 Shikoku 234.3 +1.3 19.8 -4.2 Hokuriku 225.2 +0.8 9.8 -27.7 ----------------------------------------------------- Source: Company results -----------------------------------------------------

Warner-Lambert, the US drugs and consumer products group which this week announced a Dollars 468m restructuring plan, is going through the pharmaceuticals wringer.

Like other companies, Parke-Davis, its drugs subsidiary which is the 14th largest pharmaceuticals group in the US, has been hit by healthcare reforms in Europe and America. The speed of changes in the US, in particular, has taken the company by surprise, admits Mr Lodewijk de Vink, president and chief operating officer.

But the subsidiary's performance has also been affected by problems specific to it. Its growth has been severely limited since January, when the US patents of its best-selling drug, Lopid, a cholesterol-lowering treatment with sales last year of Dollars 556m, expired.

Revenues have also been undermined by running foul of the US Food and Drug Administration, which stopped production at six of its US and Puerto Rican plants.

The company believes this will cost it Dollars 150m in lost turnover this year. In addition, the group's tax rate is set to rise next year because of the US government's decision to limit tax credits for manufacturing in Puerto Rico.

Warner-Lambert's efforts to counter the expected decline in Lopid sales by launching new drugs have been dogged by problems.

Cognex, a treatment for Alzheimer's Disease, had a rough ride through the FDA, being rejected twice before finally being licensed in the US this September.

New-York analysts HKS & Co believe the medicine could be held back by its limited efficacy and side-effect concerns, and annual sales could struggle to only Dollars 100m or reach Dollars 500m.

Warner-Lambert's latest response is to announce a further round of restructuring and rationalisation. About 2,800 of the group's 34,000 employees will leave the company. That follows job losses of 2,700 announced earlier in 1991.

Research and development spending - running at 18 per cent of drugs sales - is not sacrosanct, says Mr de Vink. 'Research used to be a cost centre that was never questioned. We need to make some hard choices. We can't fish in every therapeutic pond, but I want more lines in each pond,' he explains.

'The days of macho R&D spending - when more was necessarily better - are over. The industry's current level of spending on R&D is clearly unsustainable,' he insists.

Although the pharmaceuticals division is clearly in trouble, the group is being supported from unexpected quarters.

Its confectionery operations and over-the-counter (OTC) non-prescription medicines business, with products ranging from Trident chewing gum to Clorets breath-fresheners, have traditionally been regarded as a burden because of their low margins compared with prescription pharmaceuticals.

'This is a Dollars 6bn company of which only a third is pharmaceuticals. The other two-thirds are not affected by healthcare reforms or patent expiries. Our diversity used to be a weakness. Now it's a strength,' says Mr de Vink.

Warner-Lambert has successfully created strong international brands capable of generating a steady, though unspectacular, stream of earnings growth. Some of its products, like Listerine mouth-wash, are more than 50 years old, but are still growing. The company actually created the mouth-wash market in Japan when it launched the product there.

The group is still expanding its consumer business through acquisition. In May it bought the Wilkinson Sword wet shave operations, building a Dollars 500m razor and blade business.

Meanwhile, Warner-Lambert has continued to build its OTC medicines business, the largest in the US. In July, the company secured access to Glaxo's Zantac and Wellcome's Zovirax, the two most important drugs capable of switching status from prescription only to OTC.

Mr de Vink's strategy to deal with expiry patents is to drive Warner-Lambert's generics business harder.

'Some of the returns are not bad. And we don't have to do the R&D,' he explains. The operations will be more aggressive in future in an effort to keep plant operating at capacity. He does not exclude manufacturing drugs developed by other companies whose patents have expired.

The group's pharmaceuticals portfolio is, however, looking thin, apart from Cognex and Accupril, an ace inhibitor heart drug, which is doing well thanks to aggressive pricing. It should become a Dollars 250m product.

Meanwhile, Neurontin, an epilepsy treatment, has been filed with the FDA but is not yet approved. Mr de Vink says it should generate at least Dollars 100m a year.

Mr de Vink says he wants more products in the pipeline. 'The typical life-cycle of a drug could be falling to only four or five years and if that is the case you have to have a lot more new products,' he explains.

The company is planning research alliances with other groups. In February it acquired 34 per cent of Jouveinal, a French drugs maker with an innovative pipeline. It already has an alliance with Rhone-Poulenc Rorer in antibiotics.

The efforts of Mr de Vink and his chairman and chief executive Mr Melvin Goodes, mean that in spite of Warner-Lambert's difficulties in pharmaceuticals, analysts expect the group to outperform most of the drugs sector in the medium-term. A not unimpressive achievement for a mouth-wash and chewing gum company.

Guoco Group plans to list Dao Heng Bank, its wholly-owned banking subsidiary, early next month, company executives confirmed yesterday.

Dao Heng is Hong Kong's fourth largest bank in terms of assets and number of branches in Hong Kong. Earlier this year it acquired Overseas Trust Bank (OTB) for an estimated HKDollars 4.5bn (USDollars 58m) and promised a stock market flotation later in the year.

Guoco will issue 38.52m shares to the public - equal to 5.87 per cent of the bank's enlarged capital - at a price of HKDollars 21.70 each.

In addition, 151.75m shares (23.13 per cent of the bank's capital) will be offered to holders of USDollars 350m worth of convertible preferred stock which was issued to fund the acquisition of OTB.

The issue price represents a prospective price/earnings ratio of 14.5 on a fully-diluted basis.

Dao Heng's net tangible assets value has been put at HKDollars 8.46 a share.

Guoco, which is controlled by the Kwek family of Singapore, will retain a 71 per cent interest in Dao Heng.

Argentina is poised to raise more than USDollars 130m with the sale of the government's remaining minority stake in the semi-privatised electricity generator, Central Puerto.

Strong demand allowed the government on Monday to raise its maximum price for the shares by 8 per cent, to Dollars 5.40. However, economy minister Mr Domingo Cavallo announced on Tuesday that the government would offer its 30 per cent stake at Dollars 5.30 a share.

Mr Cavallo fixed the price slightly below the ceiling in order to attract longer-term buyers and to deter speculation. However, analysts expect trading in the Buenos Aires 'grey' market to be fierce, given that the issue was heavily oversubscribed.

The government sold 60 per cent of Central Puerto for Dollars 92.2m in April 1992 to a consortium led by Chilgener of Chile. The company's employees hold the remaining 10 per cent.

The next semi-privatised company in line for stock market flotation is expected to be Central Costanera, a larger generator, which could be ready for an international offering in December.

The government is expected next year to offer its minority stakes in 10 gas transport and distribution companies.

Argentina plans to raise Dollars 750m next month from the sale of global bonds, the proceeds of which will be used to refinance maturing debt. Officials had earlier indicated that the offering would be around Dollars 500m. Pricing of the bonds should be detailed next month.

Israel's government was yesterday reviewing its large bank privatisation programme after investors spurned the latest issue of 10 per cent of Bank Hapoalim, Israel's largest bank, offered on the Tel Aviv stock market.

The government managed only to sell 69 per cent of its 1.2m share offer, raising Shk403m (Dollars 139m), Shk200m less than expected. A further 1 per cent of shares were sold to employees at a discounted price, raising Shk43.7m. The government's first offer of 20 per cent of Bank Hapoalim in May was oversubscribed 2.2 times and raised Shk780m.

Bankers and stock market analysts yesterday blamed the government for mismanaging the share issue and warned of similar results at next week's offer of 10 per cent of Bank Leumi unless technical changes were made to the structure of the issue. They said the government had ensured the flop by abolishing the maximum share price, leaving out underwriters and refusing to attach options or warrants. The elimination of the maximum price on the issue meant there was no pre-sale to institutional investors.

'The new structure of the issue precluded investors that usually invest on the first day to make a quick killing. Basically, the concept of the market was if there is an availability of shares on the market at a known price then why go through the process of allocation without knowing what the price will be,' said one banker.

'The problem was with the technical structure of the issue not with the financial attractiveness of Bank Hapoalim,' he added. Shares in Bank Hapoalim offered by the government in May have appreciated 30 per cent in real terms in the past six months.

The government said yesterday it was committed to next week's sale of 10 per cent of Bank Leumi, Israel's second largest bank, in spite of the failure of the Bank Hapoalim issue. But market experts said unless the structure of the issue was changed investors would spurn the Bank Leumi offer.

BF Goodrich, the speciality chemicals and aerospace group, launched a public offering to sell its remaining 49.5 per cent interest in the Geon subsidiary which it floated earlier this year.

The proceeds from the sale, put at Dollars 248m before tax, will be used to fund part of the Dollars 300m acquisition of Emerson Electric's Rosemount aerospace division, announced two weeks ago.

The two transactions mark the culmination of Goodrich's plan to narrow the scope of its operations to speciality businesses which it believes have good profit growth potential, and move away from cyclical businesses.

The company has said it expected earnings next year to be significantly ahead of the 60 - 70 cents a share projected for this year.

The 12.9m shares in Geon, a maker of polyvinyl chloride, have been offered at Dollars 20 each.

This is below the current market price, which edged down to Dollars 20 5/8 on the news, but still ahead of the Dollars 18 at which Goodrich floated its first 13.1m shares in the company in April.

The company reported a one-off pre-tax gain of Dollars 91.9m after the flotation, suggesting that the fourth-quarter gain from the latest sale will top Dollars 100m.

Nestle, the world's largest foods group, said sales in the first 10 months of 1993 were up 5.2 per cent to SFr46.6bn (Dollars 31.3bn). It attributed the rise to a slight acceleration of growth in the second half.

Mr Helmut Maucher, chairman, said directors were 'satisfied' with progress this year in the face of sagging sales in Europe, the group's principal market area.

He indicated that the sales growth trend for the full year was established, and that net income would also rise to a similar extent. The net margin would remain at last year's level of 5 per cent of sales, he said. He expected further sales and profit growth in 1994.

He dismissed suggestions that consumers were turning away from branded products. 'To the extent that these products offer the consumer innovation and convenience, and provided that their prices are competitive, they will continue to benefit from consumers' loyalty,' he said.

Mr Reto Domeniconi, finance director, said Nestle had been able to raise its prices an average 2.4 per cent in the first 10 months (except in countries with hyperinflation).

The real internal growth of Nestle's sales remained a weak 1.2 per cent in the first 10 months, well below the 3.3 per cent in the whole of 1992. Most of the rest of the 5.2 per cent growth came from acquisitions.

Sales in Europe, where the group has traditionally made half its sales, were down one per cent to SFr21.8bn. Sales in North and South America gained 10 per cent to SFr16.9bn, and those in the rest of the world jumped 14 per cent to SFr7.9bn.

Mr Maucher said the group's heavy investments in developing countries were paying off. 'We are the only large food group to have a quarter of our sales in countries other than the US and Europe,' he said.

Mr Edmond Alphandery, the French economy minister, yesterday confirmed that Elf-Aquitaine, the oil group, would be the first company to be privatised next year. He said the government's stake may be sold in tranches.

'It is a large amount, and it is not impossible that it could be sold in bits,' Mr Alphandery said, adding that no decision had yet been taken on the process of the sale.

The government's 50.8 per cent stake in Elf-Aquitaine has an estimated value of FFr50bn (Dollars 8.5bn), much larger than the FFr28bn raised through the privatisation of Banque Nationale de Paris, and the FFr13bn from the sale of the state's holding in Rhone-Poulenc, the chemicals group.

Industry observers say they expect the sale to be done in one block, although payment for shares could be done in instalments.

Mr Alphandery was speaking after the government launch of a tender offer by which companies can bid for stakes in Banque Hervet, the small private bank to be sold as part of the privatisation programme.

The sale of 89 per cent of the shares in Banque Hervet, due to be completed by the beginning of 1994, will not be open to a public offer. It is expected to raise about FFr1bn.

Banca d'America e d'Italia (BAI), Deutsche Bank's big Italian subsidiary, is paying L470bn (Dollars 277m) to buy a controlling 58.07 per cent stake in Banca Popolare di Lecco (BPL), a profitable northern regional bank.

BAI will also have to mount a compulsory offer to minority shareholders in BPL, which is quoted on Milan's unlisted securities market, at the L18,279 a share it is paying the bank's controlling shareholder, Banca Popolare di Novarra. The offer will add an estimated L340bn to the transaction.

Final pricing, and terms of the public offer, will only be established in early April 1994, after a due diligence examination of BPL's accounts.

The deal is the biggest single investment by Deutsche Bank in Italy since its December 1986 takeover of BAI for Dollars 603m. Since then, the Italian subsidiary has expanded its branches. Last year it made an unsuccessful bid for Citibank's southern Italian retail banking operation.

The purchase comes at a time of ferment among Italy's medium-sized regional banks, which have tended to steer clear of the big loan-loss provisions now being made by the country's larger financial institutions.

Banca Popolare di Verona, a leading north Italian regional, has launched an unprecedented hostile bid for Banco San Geminiano e San Prospero, a medium-sized bank based in Modena. Separately, the Parma savings bank, which has already grown through local mergers, last week confirmed it was in talks to buy Credito Commerciale, a slightly bigger Milan-based counterpart.

In some cases, as in the BPL and Credito Commerciale deals, the once-inconceivable sales of prized subsidiaries has become necessary to staunch financial difficulties at their parent companies. In the case of Banco San Geminiano, high profits and good geographic coverage have drawn the unwanted attention of an ambitious neighbour taking advantage of indirect encouragement from the Bank of Italy for more bank mergers.

BPL has about 1,200 staff and 100 branches in Lombardy, Italy's richest region. The bank, which has total assets of about L6,000bn, will continue to operate independently of BAI for the time being. BAI now has around 150 branches nationwide and about 3,000 staff.

No changes can be expected to the terms of the proposed merger between Renault and Volvo, according to Mr Louis Schweitzer, chairman of Renault.

'The terms and conditions are final from the French side,' Mr Schweitzer told the Financial Times late on Tuesday. 'The deal is fair and we have fully answered the concerns of Volvo shareholders. This is it, there is a time for decisions,' he said.

Mr Schweitzer yesterday met with a group of leading Volvo shareholders in Paris in an attempt to counter Swedish resistance to the proposed merger.

Opposition from Volvo shareholders has already forced the postponement of a vote on the deal - originally due earlier this month. A new vote has been set for December 7. A group of 12 Swedish institutions controlling 44 per cent of the votes in the Swedish company hold the key to approval of the deal.

The French government has sought to win backing for the merger by giving written commitments to Volvo shareholders concerning the two most controversial aspects of the deal: the timetable for privatisation, and the use of a golden share to be held by the state.

Last week, Mr Edouard Balladur, the French prime minister, wrote to Mr Carl Bildt, his Swedish counterpart, stating the French government's intent to privatise the merged company next year, and pledging that the golden share would not be used against Volvo.

Mr Schweitzer warned that a rejection of the planned merger between Renault and Volvo would damage existing co-operation between the two automotive groups, which are already engaged in a far-reaching alliance based on minority cross shareholdings.

'The momentum would disappear,' said Mr Schweitzer. 'You cannot work together without a strong sense of direction. And there would be none.' He said recent disruption to the merger process had already slowed and destabilised efforts to build a joint management organisation.

The Renault chairman said he had been surprised by the scale of opposition from Swedish investors. 'Emotions built up in a rather violent way and have overshadowed the issues and the progress we have made. It has become a political issue in Sweden,' he said.

Mr Schweitzer stressed the industrial logic of the proposed merger, due to take effect from the beginning of next year. The cost-savings from joint purchasing, research and development and economies of scale would strengthen the two companies' car and truck operations.

Mr Schweitzer said the European automotive markets showed signs of bottoming out. He forecast a modest recovery in demand from mid-1994.

He said he was confident that Renault would remain profitable despite the protracted downturn in the car and truck markets.

Nobel Industries, the Swedish chemicals group to be taken over by Akzo of the Netherlands, yesterday announced profits little changed at SKr298m (Dollars 35.6m) for the first nine months of 1993, from SKr304m last time.

However, the company said it was benefiting from low interest rates and the sharp fall this year in the value of the Swedish krona. It predicted that full-year profits would 'improve somewhat' over the 1992 result of SKr237m.

Nobel and Akzo announced earlier this month an agreed deal under which Akzo would pay SKr16.6bn to take control of the Swedish company. Nobel is 73 per cent-owned by the state through Securum, a 'bad bank' set up to group the bad debts of the state-owned Nordbanken.

When combined, Akzo-Nobel will be the world's biggest paints group and the second largest pulp and paper chemicals producer.

Nobel said currency hedging had blunted the effect of the falling Swedish krona, knocking SKr247m off operating profits in the nine months. The operating profit was down at SKr819m from SKr836m last time, in spite of a rise in sales, to SKr17bn from SKr15.8bn.

However the group, which has most of its production in Sweden, said the currency fall had strengthened its competitiveness. It said the unwinding of its hedged position would lead to stronger results in the first half of 1994.

Stora, Europe's leading pulp and paper group, swung strongly back to profits in the third quarter of 1993, with a sharp reduction in financial costs offsetting persistent price weakness in its main markets.

Profits after financial items for the three months were SKr264m (Dollars 31.5m), compared with a SKr333m loss in the same 1992 quarter. The turnround took profits for the first nine months to SKr294m from a SKr496m deficit a year ago.

Mr Lars-Ake Helgesson, Stora president, said the market situation was 'largely unchanged', with prices stabilising at low levels during the third quarter.

'The general economic picture in western Europe is weak, particularly in Germany,' he said.

The benefit of the weaker krona lifted sales for the first nine months to SKr37.7bn from SKr35.4bn. However, operating income only increased by SKr8m to SKr850m.

The real impact on the result came from the drop in financial costs, to SKr556m from SKr1.39bn. The group has benefited from lower interest rates and a better trend within its financial services arm.

Cost-savings and new efficiency measures have helped the group compensate for lower prices. The company said it had already cut costs this year by SKr1.7bn. It expects savings for the full year to amount to SKr2bn, the same as in 1992.

The group did not give a full-year forecast, although it will show a clear improvement on last year's SKr1.42bn loss. Deliveries of the group's main products in 1993 are expected to be largely unchanged on last year.

MoDo, another Swedish forestry group, said losses had nearly halved in the first nine months of 1993, to SKr476m from SKr925m a year earlier.

It said price pressures, losses from French operations, and heavy interest costs were keeping it in the red, even though the weaker krona and rationalisation had enhanced its competitiveness.

The group effectively predicted a full-year loss of around SKr600m by saying its final-quarter deficit would equal the SKr123m level struck in the third quarter.

Metallgesellschaft, the German metals, mining and industrial conglomerate, yesterday blamed a combination of falling metals prices, difficulties in the motor industry, and restructuring costs for a swing from profits to a pre-tax loss of DM347m (Dollars 204.1m) in the year ended September. Last year's figure was DM245m.

Mr Heinz Schimmelbusch, group chief executive, warned that Metallgesellschaft would probably omit its dividend for 1992-93. This would make the group one of several leading German companies to pass their payout this year.

However, pessimism on the dividend was offset by the prediction that the group would return to profit this year, reflecting extensive cost-cutting and further disposals.

Mr Schimmelbusch defended his ambitious acquisition strategy - which culminated in 1992 with the DM1.45bn purchase of the non-paper activities of Feldmuhle Nobel - saying the impact of the downturn in Germany would have been far more severe without the deals of recent years.

He said the disposals programme of the past year was not designed to correct the earlier diversification. It was, rather, aimed at focusing on five, well-defined business areas, ranging from metals trading to plant construction and environment services.

Mr Schimmelbusch said sales of non-core businesses led to a book profit of DM378m in 1992-93, and were set to bring in another DM600m this year.

The chief executive said he was confident of reducing costs by DM1.1bn in the three years to 1995. Half of this will come by cutting more than 10,000 jobs. In the last two years, the group has cut 7,400 jobs, 12 per cent of the workforce.

The reported loss for the year - achieved on group turnover unchanged at DM25.5bn - included losses of DM290m on the Schiess machine-tools company which has subsequently been sold.

Metallgesellschaft published for the first time a divisional breakdown of profits and turnover.

Pre-tax profits from metals trading rose to DM147m from DM129m; at plant construction they were DM45m, against DM21m; in metals and mining there was a loss of DM174m after a DM65m deficit last time; environment services made DM31m; industrial activities made DM111m against DM114m.

Kitty Little, the USM-quoted maker of fragrant gifts, air fresheners and self-selection reading glasses, is acquiring the Foster Grant trade mark from Benson Eyecare.

Consideration of Pounds 720,000 will be satisfied via the issue of 2.4m new shares at 30p apiece.

At the same time the group has arranged a placing and open offer of 7.13m new shares, on a 7-for-10 basis at 30p, to raise Pounds 2.14m to fund the recently-announced purchase of Samco Sunglasses.

Of these, Durlacher & Co has placed firm 5.46m shares of which 3.17m have been placed with Benson Eyecare.

In total Benson will hold 28.25 per cent of the enlarged group.

Anglo Irish Bank lifted pre-tax profits to IPounds 9.25m (Pounds 8.8m) for the year ended September 30. Last year's profits of IPounds 6.38m were restated in accordance with FRS 3.

Mr A Gerard Murphy, chairman, said that despite the turbulent conditions of the first four months the loan book emerged relatively unscathed from high interest rates.

Earnings per share worked through at 5.7p (4.36p) and a final dividend of 2p is recommended for an unchanged 3.36p total.

Foreign & Colonial Emerging Markets Investment Trust saw a 65 per cent rise in net assets per share at September 30, from 61.6p to 101.7p.

Attributable revenue came out at Pounds 314,000 (Pounds 732,000). Earnings per share were 0.31p (0.73p); a single final dividend of 0.27p (0.25p) is proposed.

City of London PR Group, the USM-quoted specialist investor relations and market research company, lifted pre-tax profits by 10 per cent from Pounds 292,000 to Pounds 322,000 in the six months to September 30.

Mr John Greenhalgh, chairman, said he expected a similar improvement in the second half.

Turnover declined to Pounds 1.28m (Pounds 1.54m) but that was offset by an improvement in margins, Mr Greenhalgh said. Earnings per share improved to 3.17p (2.75p) and the interim dividend is raised to 1.27p (1.15p).

The USM quote of Wentworth International, the plastic packaging products group, is being cancelled following the recent rights issue.

Monceau Investments, a wholly owned subsidiary of Banque Indosuez, will take up the balance of the rights issue shares, following which it will hold 91.15 per cent of the enlarged share capital.

Wentworth is investigating the possibility of its shares being dealt on a matched bargain basis under Rule 535(2).

Tex Holdings, a provider of consumables to the plastic, steel and energy industries, returned to the black in the six months to September 30.

Profits before tax of Pounds 486,000 were achieved after charges of Pounds 104,000 for factory closure and redundancy costs. Last time losses were Pounds 146,000.

Turnover expanded to Pounds 12.3m (Pounds 7.9m). Earnings were 5.1p (1.6p) per share.

Losses at Cosalt, the diversified industrial group, were cut from Pounds 906,000 to Pounds 232,000 pre-tax for the year to August 29. Turnover from continuing activities fell from Pounds 62.6m to Pounds 61m.

Directors said the group would have returned to profit but for their decision to sell the fishing-related rope, net and twine business which resulted in an above-the-line provision of Pounds 700,000.

Exceptional items accounted for Pounds 357,000 (Pounds 2.14m) and interest for Pounds 1.06m (Pounds 1m). Losses per share emerged at 2.7p (7.4p). All comparative figures have been adjusted to conform with FRS 3.

A final dividend of 3.25p is to be paid from reserves for a 5.375p (10.75p) total.

Pre-tax profits at Falcon Holdings, the valve and pipeline equipment distributor formerly known as Walker & Staff, declined from Pounds 237,000 to Pounds 175,000 in the six months to September 30.

Turnover at both Falcon and Walker & Staff, its trading company, fell 14 per cent to Pounds 3.15m (Pounds 3.67m).

Operating profits emerged at Pounds 144,000 (Pounds 187,000).

Earnings shrank to 5.3p (7.3p) per share and an interim dividend of 3p (nil) is declared.

Dunedin Worldwide Investment Trust lifted net asset value by 40 per cent, from 603.3p to 843.5p per share, over the 12 months to October 31.

Net revenue improved to Pounds 3.29m, against Pounds 3.12m restated to allow for a change of policy on income from fixed interest securities, for earnings of 9.68p (9.15p) per share. A recommended final dividend of 7.1p maintains the total at 9.5p.

ABI Leisure Group, the caravan and leisure homes manufacturer, achieved a 23 per cent improvement in pre-tax profits, from Pounds 2.31m to Pounds 2.84m, in the year ended August 31.

Turnover rose 10 per cent to Pounds 61.8m (Pounds 56.2m) with exports contributing over 31 per cent (25.3 per cent). A distributor has been appointed covering France, Spain and Portugal.

Mr George Shiels, chairman, said that despite a reduction in the size of the market, sales of UK leisure homes had increased.

Earnings per share advanced to 7p (5.8p) and the total dividend is maintained at 3.76p with a proposed final of 2.51p (2.19p).

Shares in BPP yesterday plunged to their lowest level for almost three years as the language and professional training company warned annual profits would lower than expected due to increased rationalisation costs and a substantial property write-down.

The market marked the shares down 90p to 215p, their lowest since February 1991, after the group announced it expected profits to be at least Pounds 6.3m before the write-down.

Analysts had expected profits, scheduled for March 21, of about Pounds 7.8m.

The group also said it expected to take a charge of about Pounds 5.3m through the profit and loss to account for a Pounds 7.5m reduction in the value of its properties. The rest would be charged against reserves.

BPP issued the warning following its decision to pull out of language training in Belgium and Japan at a further cost of Pounds 300,000. This followed the company's warning in August that it would incur Pounds 650,000 in charges for reducing its exposure to the depressed Japanese market.

Mr Richard Price, chairman, said yesterday trading had become particularly tough both in Japan and continental Europe in the last three months.

The language division was expected to incur a loss of Pounds 400,000 ' against profits of Pounds 857,000 last year ' of which Pounds 200,000 was attributable to the Belgian and Japanese businesses.

Mr Price said he expected trading in the language division to be difficult through 1994, due to the increasingly depressed climate in France and Germany.

However, he emphasised that profits continued to move ahead at the group's three other divisions - publishing, and academic and professional training - albeit less rapidly than expected in the first two cases.

He said confidence in these three businesses reinforced the decision to forecast an increased final dividend of 5.8p (5.3p), for a total of 8.8p (8p).

Opinions may differ on whether a line of new pylons through the hills of southern Scotland near the A74 Glasgow-Carlisle road enhance the scenery.

They will certainly enhance the business of Scottish Power and Scottish Hydro-Electric, the two Scottish electricity companies.

The recently-completed pylons are the upgraded interconnector, the transmission line taking Scottish electricity exports to England.

Scottish Power, which reports its interim results today, gets the lion's share of the 350MW increase in the interconnector's capacity, which is rising to 1,200MW, though Hydro-Electric's export capacity will rise slightly.

Total capacity should rise to 1,600MW by 1995, following improvements in the English grid.

Last week Scottish Power received another boost when it concluded an agreement with British Coal to take more than 2m tonnes of coal a year for the next five years on terms similar to those reached by the two English generators in the spring.

The deal involves a backdated reduction in the price which will cut the company's fuel costs by Pounds 10m this year, and a more rapid drop in world coal price levels than planned under the previous contract. Hydro-Electric, which generates most of its electricity from gas and hydro power, will get one sixth of the coal.

Unlike the regional electricity companies and the two English generators, the Scottish companies are vertically integrated, both generating and supplying electricity.

Apart from the Northern Ireland company they were the last to be floated and the only ones where the government got the price about right, permitting a small premium for investors but a sluggish aftermarket.

From the start in 1991 the two companies pursued different strategies.

Scottish Power, with a market capitalisation more than twice that of Hydro-Electric, concentrated on its much bigger domestic market, while exporting power to England via the interconnector. It also developed some generating projects in England and studied the possibility of supplying power to the Isle of Man, but none of these schemes materialised.

Hydro-Electric was nimbler in signing up to supply individual customers south of the border. With Norweb it pushed ahead on a project to build a 680MW gas-fired power station at Keadby on the Humber.

Analysts considered Hydro-Electric more dynamic and the market established a premium for its shares over Scottish Power.

However, in September Hydro-Electric dropped out of the FT-SE 100, and since October has stood at a slight discount to Scottish Power, which is now making a bigger effort to explain where it is going.

Mr Ian Preston, Scottish Power's chief executive, put achieving greater efficiency as a primary objective. It is now bringing itself up to the benchmark standards of the best US utilities, and has shed 30 per cent of staff in its core business since privatisation.

Other aims are to make the most of its generating assets and 'to diversify prudently in utility-related businesses'.

It has plans to build a 250MW interconnector to supply Northern Ireland. The original route for the pylons across Ayrshire ran into opposition but the company will seek planning consent for a revised line next year.

When that comes onstream towards the end of the decade, and taking into account the interconnector upgrade to England, 30 per cent of Scottish Power's output should be going outside its own territory at prices outside the control of the regulator. The present level is 9 per cent.

In diversifying, Scottish Power has reorganised its retailing business, which claims 30 per cent of the Scottish white goods market and is expanding in northern England. It has a joint venture in gas with Utilicorp, named Caledonian Gas, which already has 2,000 customers.

'It's a low risk business,' says Mr Preston. 'Caledonian gets the customers, Utilicorp supplies the gas and British Gas delivers it.'

Like other gas suppliers he is urging the government to liberalise the gas market to embrace most domestic customers. At present only consumers who take 2,500 therms a year, giving an annual bill of more than Pounds 1,100, can choose their supplier.

Scottish Power is also spending Pounds 7m on a fibre optic telecommunications network between Glasgow and Edinburgh for use by other companies.

For Hydro-Electric, with a much smaller domestic market and a share of the interconnector that will only reach 490MW in 1995, the priority has been to develop generating capacity south of the border.

That policy is now coming to fruition. The Keadby plant will begin operating in January 1995, and last month it formed a joint venture with BNF called Fellside to own a 157MW gas fired combined heat and power plant opening early next year at Sellafield.

With the enhanced interconnector and a 7MW combined heat and power plant at Dover, Hydro-Electric should be supplying 820MW of power in England by 1995.

The north of Scotland company recently formed Vector Gas, a joint venture in gas with Marathon, which intends to market gas all over Britain under the HE Energy label. Rather more than Scottish Power, Hydro-Electric has its sights on becoming an all-purpose energy utility.

Goodhead Group, the printing and publishing company, yesterday announced a Pounds 17m pre-tax loss for the year to end-May, a Pounds 5.8m placing and open offer, and two disposals.

The deficit compared with a profit of Pounds 335,000 last time and included a Pounds 10.3m adjustment for goodwill, a Pounds 4.34m net loss on the disposal or closure of subsidiaries and Pounds 2.26m of other asset write-downs.

Turnover fell from Pounds 40.3m to Pounds 37.4m, of which Pounds 7.77m (Pounds 9.85m) was attributed to discontinued operations.

Losses per share came out at 101.4p (1.9p) and the single dividend is cut from 0.5p to 0.05p.

Mr John Madejski, chairman and chief executive, said that the net assets of the group had fallen substantially - from Pounds 14.3m to Pounds 6.81m. The purpose of the proposed fund-raising was to address that reduc-tion and cut borrowings, he said.

The company is proposing to raise Pounds 5.8m net of expenses via a placing and open offer of 24.2m new ordinary shares at 25p apiece on a 9-for-7 basis and/or 1.8368 new ordinary for every two preference shares held.

Mr Madejski is to subscribe up to Pounds 5.5m. A further 2m shares are to placed with 3i, subject to the entitlements of shareholders. Dealings in the new shares are expected to commence on December 22.

The fund-raising is subject to shareholder approval. In particular, they are being asked to approve the waive by the Takeover Panel of the possible obligation on the chairman to make a general offer for Goodhead in the event of his holding carrying more than 30 per cent of the voting rights in the company.

In addition, in line with Goodhead's objective of refocusing the business, it is proposed that all non-core activities are sold.

A number of disposals had already been completed, the chairman said, and the company is now seeking shareholder approval for the sale of the leasehold property at Portbury, Bristol, and for the sale to its management of Company Publicity and its subsidiaries.

The shares closed up 6p at 23p.

Providence Capitol and James Capel are launching an indexed investment trust specialising in European smaller companies.

The Fairbairn European Smaller Companies Index Trust has already raised Pounds 47m and is seeking to increase this to up to Pounds 65m via an offer for subscription.

The trust will track the James Capel European Smaller Companies Index, which covers 17 countries from Austria to Turkey and includes 1,000 stocks.

Providence Capitol, as investment manager, will buy a portfolio of 350 securities selected by James Capel to replicate the performance of the index. This is the first in a series of indexed investment trusts which Providence Capitol hopes to launch.

The managers believe that this is a good time to buy European smaller companies. In both the US and the UK, smaller company shares have recently outperformed their larger brethren as economies have shown signs of recovery.

In Europe, smaller companies have underperformed since the start of 1991 as continental economies moved into recession. With interest rates falling, European economies should recover and smaller company shares start to outperform.

Shares are being offered at 100p, with a minimum investment of Pounds 2,000. The trust will have a seven year life which can be extended at the shareholder's option.

The trust qualifies for personal equity plan status although no specific plan is linked to it.

Increased margins and the lack of exceptional costs this time enabled Osborne & Little, the wallpaper and furnishing fabrics concern, to report a turnround from losses of Pounds 802,000 to profits of Pounds 947,000 pre-tax for the six months to the end of September.

Last year there was a charge of Pounds 1.2m relating to the sale of the French offshoot.

Sir Peter Osborne, chairman, said the margins rise reflected continuing emphasis on cost control and the effect of sterling's devaluation.

Group turnover rose 3 per cent to Pounds 9.13m, against Pounds 8.87m, which included Pounds 1.83m from discontinued activities. Earnings per share, helped by the purchase for cancellation of 300,000 shares, were 9.33p (losses 13.48p).

The interim dividend is raised from 2p to 2.5p.

In spite of markets in which it operates remaining weak, Platignum, the manufacturer of pens, stationery, furniture and housewares, returned sharply higher profits for the six months to end-September.

At the pre-tax level they improved from Pounds 69,000 to Pounds 398,000 from turnover, boosted by acquisitions, ahead 32 per cent at Pounds 10.7m.

Profits took account of higher interest charges of Pounds 146,000 (Pounds 78,000). However, there were no exceptional provisions this time compared with Pounds 260,000 previously.

The interim dividend is lifted to 0.28p (0.25p) from earnings of 1.74p (0.29p).

Gluetek and Housley International, both acquired earlier this year, made a 'positive' impact on the results.

ML Holdings, the aerospace, defence and electronics group which launched a Pounds 14.3m rescue rights issue in January, returned to the black in the six months to September 30.

Pre-tax profits amounted to Pounds 2.1m, compared with losses of Pounds 1.5m.

Mr Howard Grant, chief executive, said the figures - 'the first meaningful set of results since the rights issue' - confirmed the group's recovery. But the board deferred a decision on a dividend until the end of the financial year.

Turnover improved by 7 per cent, from Pounds 40.2m to Pounds 43.1m. The group has cut almost 190 jobs compared with the previous half, so that sales per employee were ahead 24 per cent.

Mr Grant said progress had been made in all three divisions. Aerospace and marine boosted operating profits by 81 per cent to Pounds 1.41m on flat turnover of Pounds 17.8m.

Group borrowings, at Pounds 14.9m, were marginally higher than at the year end, reflecting the timing of some big contract payments, mainly for aircraft.

The electronic component distribution division lifted operating profits 70 per cent to Pounds 1.18m, while the aircraft and cargo handling division returned to the black with a contribution of Pounds 120,000 (Pounds 157,000 loss).

Gearing stood at 60 per cent at the end of the half, compared with 125 per cent.

Earnings per share were 1.1p (2.6p loss).

Concentric, the diversified Midlands-based engineering group, lifted pre-tax profits by 13 per cent in the year to September - a period which included 'unusual instability in every business in which we are involved.'

Pre-tax profits of Pounds 9.36m (Pounds 8.25m), achieved on turnover of Pounds 116.4m (Pounds 113m), were at the lower end of market expectations.

'Month by month business and opportunities have been up and down,' said Mr Tony Firth, chairman.

'General market conditions show no sign of improvement,' he added.

He said that the automotive market, which accounts for about half of Concentric's sales, 'collapsed' last January.

The business in satellite dishes had been sluggish with considerable amounts of stock on the market following technical changes in dish specifications in the middle of the year.

By September, export sales accounted for 30 per cent of turnover, against 28 per cent in the first half; Mr Firth said, however, that continental European customers had 'lost interest' as recession deepened.

Against the background of market difficulties, the rise in profits came from winning market share, the exploitation of new business and improved margins, Mr Firth said.

Following the rights issue in 1992, Concentric maintained a net cash position, although capital expenditure nearly doubled to Pounds 8m. The group has sought higher productivity through a restructuring which reduced the size of the workforce from 2,000 to 1,900 a year ago.

Earnings per share rose from 11.63p to 12.03p. The final dividend is 4.09p, making a total of 5.86p (5.59p adjusted for January's scrip issue).

British Midland Airways, the second largest UK carrier, is strengthening its relationship with Scandinavian Airlines Systems by taking over a number of SAS routes from the UK to Scandinavia as well as eight SAS Boeing 737-500 aircraft.

Sir Michael Bishop, BMA's chairman, also confirmed yesterday that SAS would take up its option to acquire next July a further 5 per cent stake in Airlines of Britain Holdings, BMA's parent company.

This would increase SAS's overall stake in the UK airline group to 40 per cent.

Although SAS is currently reviewing its entire strategy following the collapse this week of the proposed Alcazar merger between SAS, KLM Royal Dutch Airlines, Swissair and Austrian Airlines, Sir Michael said the Scandinavian carrier was planning next April to look at how to develop its relationship with BMA.

But the two airlines had already agreed on two projects to reinforce their co-operation, including agreement for BMA to take over SAS's Glasgow-Copenhagen and London Heathrow-Bergen services as well as the eight Boeing aircraft from the Scandinavian carrier.

The new aircraft are part of a sizeable fleet renewal and expansion programme by BMA involving 17 jets worth Pounds 275m over the next four years.

Apart from the new 737s, BMA will be the launch customer for the new Fokker 70 aircraft; it has also ordered the larger Fokker 100 aircraft.

Sir Michael said BMA expected to report higher pre-tax profits this year than the Pounds 835,000 of last year. Although profits were still not at a satisfactory level, Sir Michael said the airline had continued to make money during the last three years of the worst post-war recession in the business.

Turnover was expected to total about Pounds 350m this year while turnover for the entire Airlines of Britain group, including Manx Air and Loganair, would total about Pounds 450m.

Reflecting the airline's steady international expansion, Sir Michael said European services would account for about 55 per cent of turnover this year compared with only 20 per cent five years ago. While SAS was now likely to enter of phase of retrenchment, BMA was continuing to expand.

He stressed, however, that he considered SAS as a long term partner. 'We felt SAS was the best partner for us and the relationship has been outstandingly good. I am now 51 and I expect the partnership will continue for the rest of my working life'.

Record UK profit and currency gains helped Tate & Lyle to increase annual pre-tax profits by 17.4 per cent to Pounds 222.5m. That was above market expectations, which had been revised downwards in September when the sweeteners company warned of difficult trading conditions in the North American sugar market.

The shares gained 9p to 395p. A final dividend of 8.7p is proposed, which would raise the total from 12p to 13p, in line with Tate's policy of a 'progressive' dividend.

Mr Neil Shaw, chairman, said the outlook for the current year was encouraging, with productivity gains and improved trading conditions expected.

He emphasised that Tate is primarily a processor of agricultural products and is exposed to influences such as the weather, crop sizes and government regulation.

The group's main problems in the year were a bumper sugar beet crop in the US, leading to lower prices and government imposed limits on sales, and a glut of potato starch in Europe, hitting prices there. In each case, conditions were expected to improve in 1994.

Mr Shaw said he was 'very pleased' by the approval given to the Nafta trade agreement in the US.

Tate plans to expand its interests in Mexico, where it has a starch plant.

Tate is expanding in many developing countries, where the growth in consumption of its products is concentrated.

In central Europe, it has set up a number of joint ventures, although it has yet to earn a normal return on its investment.

Tate is now looking to establish joint ventures in China and south-east Asia.

Mr Paul Lewis, finance director, said cash-flow had been strong.

Net debt fell by Pounds 15m to Pounds 627m, although the weak pound meant the translation of the group's debt, which is largely in US dollars, added Pounds 94m to borrowings.

Gearing was 78 per cent at the year end, down from 89 per cent a year earlier, in spite of a Pounds 20m write-down of UK property values.

Mr Lewis said with interest cover of 5.7 times, up from 5, and given that it had written off Pounds 500m of goodwill over the years, the group was comfortable with its balance sheet.

A row between Bombardier, a Canadian supplier of trains for the Channel tunnel, and Transmanche Link, the main contractor, over a CDollars 746m (Pounds 379m) claim to cover cost overruns has been settled, the two sides announced yesterday.

Details will not be announced until the settlement has been approved by the boards of the two companies and Eurotunnel - operator of the cross-Channel link - on December 3, but Canadian analysts estimated the agreement would be worth CDollars 350m to Bombardier.

Bombardier lodged its claim against TML last summer to cover extra manufacturing costs incurred due to late design changes ordered by TML. The original contract, awarded in July 1989, was for the supply of 254 shuttle rail cars costing CDollars 650m.

The agreement removes the threat of further delays to the start of cross-Channel services next spring. The rail cars being built by Bombardier will carry cars, coaches and their passengers between the terminals at Folkestone and Calais.

More details will be released after formal approval has been given, Bombardier said. It has already made special provisions totalling CDollars 225m to cover possible losses on the shuttle car contract.

If the agreement is approved early next month it will avoid the possibility of the dispute going to court. Mr Laurent Beaudoin, Bombardier chairman, had warned that legal action might become necessary if the dispute was not settled by the year end.

Bombardier halted production of the rail cars being built by its Eurorail subsidiary at its plant at Bruges, Belgium, in March, but resumed deliveries in June.

Eurotunnel said yesterday that it had not been affected by the delays in shipments of the rail cars, but it was concerned that problems could arise if the dispute had continued. 'It was important for us to have something done about it,' Eurotunnel commented.

Nearly 100 of the rail cars have been delivered to TML and are being prepared for commissioning.

Shuttle services carrying trucks and cars under the Channel are due to start next May, while passenger-only trains are due to start running between London Waterloo, Brussels Midi and Paris Gare du Nord in June or July.

Tate & Lyle's combination of swings and roundabouts was largely favourable in the year to September 25, with profits before tax at Pounds 222.5m against Pounds 189.5m, although profits were still below the record Pounds 230.8m achieved in 1991. The pre-tax figure was boosted by Pounds 19.1m from exchange rate gains.

Group sales were 13.4 per cent higher at Pounds 3.82bn, and operating profits rose by 13.6 per cent to Pounds 269.6m. Two of the five divisions suffered profit falls at the pre-interest level.

In the North American sugar business profits fell from Pounds 39.6m to Pounds 28m, with Domino - the cane business - largely to blame as lower sugar prices and selling quotas hit margins. A strike at one plant cost Dollars 6m (Pounds 4m). Profits from Western, the beet business, also fell, with Dollars 7m of start-up costs from a new desugarisation plant, although this is now trading profitably.

The other division which suffered lower profits was European cereal sweeteners and starches, where the decline was from Pounds 54m to Pounds 51.4m. Lower prices were caused by a potato starch glut, after a record crop, and as the problems of the paper industry meant it used less starch.

Outside North America, profits from sugar rose from Pounds 71.2m to Pounds 94.8m, including the UK up from Pounds 49.9m to Pounds 64.4m, with a Pounds 4.6m stock profit thanks to the green pound devaluation. Productivity improved 10 per cent in the UK.

Profits from North American starch and sweeteners rose from Pounds 65.3m to Pounds 84.7m, with Staley, a problem area in 1992, up from Dollars 118.7m to Dollars 130m. In 1991 Staley made Dollars 172.5m. The partial recovery in 1993 was despite pricing pressures, a Dollars 12m rationalisation provision and a lock-out at one plant.

Animal feeds and bulk storage profits rose from Pounds 20.1m to Pounds 25.1m. Sucralose, a sugar substitute Tate has developed, lost Pounds 5.8m (Pounds 4m) and is not expected to make significant profits until it gains approval in the big markets of the US and Europe. It has gained acceptance in Canada, and has recently been approved in Australia and Russia.

Net interest charges fell from Pounds 47.9m to Pounds 47.1m. A settlement of a tax dispute in the US cut the tax charge from 26.2 per cent in 1992 to 24.7 per cent.

Fully diluted earnings per share rose from 26.2p to 32.7p.

There were premiums for all three of yesterday's newcomers to the stock market.

Shares in DFS Furniture, the specialist upholstery retailer, ended their first day's trading at 271p, compared to the 260p issue price. Some 17m shares were traded.

The rise increases the value of the 51.7 per cent stake retained by Mr Graham Kirkham, chairman, by about Pounds 6m. He raised Pounds 129m by selling 47.7 per cent of the group's shares in the flotation.

The public offer of 17.5m shares was 1.3 times subscribed, and allocations were skewed towards smaller investors.

This may have created some demand for shares yesterday from larger investors disappointed by the allotments.

Azlan Group, the networking products distributor which came to the market this week, saw its shares close 11p up on the 230p offer price.

Some Pounds 6m, net of expenses, was raised in the flotation. The proceeds will be used to increase its market share and expand internationally.

Shares of Hozelock, the garden equipment manufacturer, recovered from an early low of 235p to close 1p above the issue price at 251p.

Analysts said trading had been buoyant, with good two-way business.

The group raised a net Pounds 18m through the placing of 11.2m ordinary shares, half of which were subject to a clawback to meet retail demand through intermediaries. The offer was 2.1 times subscribed.

The company will be using Pounds 5.4m of the proceeds to redeem existing preference shares and Pounds 8.5m to repay bank and shareholder loans. The balance will provide working capital.

Shares of Aim Group, the maker of aircraft interior fittings, fell 30p to 143p yesterday following the company's warning on second half turnover and profits.

It cited the recent announcement by Saab-Scania that certification of its new Saab 2000 airliner had been delayed by a year until October 1994. The supply of its interior is the group's largest contract.

Aim said that the aerospace market continued to weaken and although first half profits should be in line with expectations, it was unlikely that current full-year profits would exceed Pounds 2m. Profits for the year to April 30 1993 amounted to Pounds 3.63m.

Merrett Group yesterday appointed Mr Alan Cleary, the chairman of its loss adjusting arm, as group chief executive in a move which indicated that it may seek to restructure its business around its insurance services - rather than Lloyd's agency - interests.

Efforts to salvage Merrett Underwriting Agency Management, whose prospects have been brought into question by the difficulties of two of its largest syndicates, are continuing. Both syndicates 418 and 1067 were hit by the withdrawal last week of a plan by Travelers, the US insurance company, to offer backing which would have helped compensate for a sharp fall in support from members' agents.

Neither syndicate may have enough backing to continue underwriting in 1994, leaving their Names - the individuals whose assets support the market - with a potentially expensive 'run-off' (meeting claims on existing policies).

Mr Cleary joined Merrett in 1991 as chief executive of the services division, which includes Miller Knight, the loss adjuster, BIS, an insurance investigations business, Merrett Health Risk Management, and a run-off company. He was recently appointed chairman of Miller Knight.

As group chief executive he replaces Mr Dennis Purkiss, who recently resigned to join Zurich Re as chief operating officer. Mr Purkiss, who will be joined at Zurich by two leading Merrett underwriters - Mr Stewart Laderman and Mr Ken Barrett, takes over as chief executive officer at Zurich next year.

Mr Stephen Merrett, chairman of the Merrett Group, said of Mr Cleary 'nobody is better equipped to see the Merrett Group through these difficult times'.

Optometrics, the USM-quoted optical systems group, reported increased pre-tax profits of Dollars 98,000 (Pounds 65,770) for the six months to the end of September, compared with Dollars 29,000.

Mr Frank Denton, chairman, said shipments were above the levels of last year and the order book remained more than 30 per cent ahead.

Turnover was Dollars 1.88m (Dollars 1.76m). Earnings per share came out at 0.7 cents (0.05 cents).

In October the company signed an agreement with Integrate Russia, which represents several large Russian optical institutes, for worldwide distribution rights of their products.

The shares rose 2p to 23p.

Alba, the consumer electronics group and UK market leader in home audio and small screen colour television sales, yesterday reported a near-36 per cent rise in interim profits and described pre-Christmas high street trading as 'very satisfactory.'

The rise, from Pounds 1.2m to Pounds 1.63m pre-tax for the six months to end-September, came on turnover 10.9 per cent higher at Pounds 50.1m. The comparative profit figure included a Pounds 194,000 loss on the now discontinued Greenwood Theatre television studios.

Mr John Harris, chairman, said: 'Trading in the UK has been good in the period under review and, despite the weak trading conditions in France and Germany, we have experienced reasonable levels of business in these countries.' He added: 'Current business in the run up to Christmas is very satisfactory.'

The chairman's comments on current UK trading were in sharp contrast to some of Alba's competitors including Amstrad, whose chairman, Mr Alan Sugar, warned last week that there was no evidence of a pre-Christmas high street spending boom.

In addition to audio and domestic appliances, which Mr Harris said had sold particularly well, the group has successfully entered the higher profile UK satellite equipment and Nicam stereo TV markets.

Earnings per share increased to 2.63p (1.82p) and the interim dividend is maintained at 1p.

Thorn EMI yesterday concluded an agreement to administer for five years a music catalogue owned by Michael Jackson, the singer.

Ownership of the catalogue will remain with ATV Music, Michael Jackson's music publishing company, which will receive advances of Dollars 70m (Pounds 46.9m) from Thorn over the period.

The advance next year will be Dollars 30m, followed by smaller advances in subsequent years.

Thorn will be paid an unspecified percentage of gross royalties.

The catalogue includes most of the Beatles songs written by John Lennon and Paul McCartney, as well as songs by Elvis Presley, Little Richard, Kenny Rogers and UB40. It does not include any work by Michael Jackson.

Strong growth in both the UK and the US helped Lowndes Lambert, the insurance broker, increase pre-tax by 24 per cent to Pounds 5.2m for the six months to end-September.

The interim dividend is lifted from 4.5p to 5p from fully diluted earnings of 12.2p (10.9p). The shares rose 3p to 417p.

Mr Richard Shaw, chairman, expected further steady growth in the second half. 'Conditions in our major markets remain difficult but . . . the advent of new capital into Lloyd's and other sectors of the world market will increase capacity in 1994.'

Unlike some of its competitors Lowndes Lambert received no benefit from the strengthening of the dollar, with its conversion rate averaging Dollars 1.58 against sterling in the last two years.

Turnover rose from Pounds 24.9m to Pounds 30.2m while administrative expenses increased from Pounds 23.9m to Pounds 27.8m leaving broking profit of Pounds 2.4m (Pounds 1m).

Income from the UK rose by 14 per cent and from the group's international division by 9 per cent.

Revenue from North American operations rose by 24 per cent. Of these amounts Norex, a UK retail and London market broker acquired last year, contributed Pounds 2.1m in turnover and Pounds 500,000 in broking profits.

Two associated undertakings - a 30 per cent stake in Datasure, and a 45 per cent share in a French subsidiary, La Nouvelle Securite - brought in a further Pounds 7m (Pounds 7.3m) in turnover and Pounds 1m in profits. Profits last year included Pounds 500,000 earned from the sale of a 10 per cent stake in a subsidiary of La Nouvelle.

Interest receivable was steady at Pounds 1.8m.

COMMENT

Since its flotation in 1991 Lowndes Lambert has steadily improved productivity recording successive increases in broking profits. With premium rates rising and prospects for the Lloyd's market - in which Lowndes places about 25 per cent of its business - reasonably positive, the group seems on course for full year 1993-94 profits of more than Pounds 13m and earnings per share of some 30p. At yesterday's closing price of 417p that puts the shares on a prospective multiple just under 14. Compared to a sector average for the medium-sized brokers of between 14 and 16 the shares appear to represent good value.

Shares of BSG International, the automotive components manufacturer, fell 12 1/4 p to 56 1/4 p yesterday following a warning from the company that a further deterioration in continental European car production would adversely affect full-year profits.

The directors estimated that for the year as a whole production would be 20 per cent lower than in 1992.

As a result, group pre-tax profits for 1993 were expected to fall from a reported Pounds 12m (restated to Pounds 7.4m for FRS 3) to 'not less than' Pounds 8.5m.

Should a sale and leaseback of two factories be completed before December 31 an exceptional profit of Pounds 2m would lift the year-end figure to Pounds 10.5m.

Pre-tax profits at Wagon Industrial, the Telford-based materials handling, engineering and automotive products group, fell from Pounds 8.52m to Pounds 5.06m in the half year to September 30 as the group absorbed the costs of restructuring Forkardt, a German subsidiary dependent on the machine tool market.

The result had been foreshadowed in June when Wagon said that the first half would be lower than in 1992-93 and that the full-year result would be similar to 1992-93, before meeting any costs at Forkardt.

Reducing the size of Forkardt cost Pounds 3m, shown as an exceptional item.

Operating profits were Pounds 7.42m against Pounds 8.1m, on improved turnover of Pounds 132m (Pounds 114m).

Although poor levels of demand in Europe continued to drag down the group's results, Mr John Hudson, chief executive, said 'the UK is definitely picking up'.

Wagon, which has net cash balances of Pounds 8m, is looking for further UK acquisitions. Last August it bought Salter Springs and Pressings for Pounds 2.9m in what looks like the first of a series of acquisitions.

Wagon holds to its June statement of full-year profits similar to those of 1992-93 but has added some gloss. Mr Paul Taylor, chairman, said the board 'feels a little bit more optimistic about prospects than was the case then.'

The interim dividend is maintained at 6.325p, payable from earnings per share down from 14.62p to 4.52p.

Disgruntled Ferranti Internat-ional shareholders are urging that the defence electronics group should be placed in administration rather than receivership if GEC's token 1p a share bid is reject-ed.

A court-appointed administrator's role is to try to secure the survival of the company as a going concern, or achieve a more advantageous realisation of the company's assets than available through a receiver's winding up of the company.

Mr John Katz, chairman of the Ferranti Shareholders Support Association, has challenged GEC and Ferranti and their financial advisers to explain why the offer document fails to mention the possibility of administration if the bid fails.

In a letter yesterday to SG Warburg, GEC's adviser, Mr Katz wrote: 'There may be factual considerations which applied in the (Ferranti) board preferring to propel the company to receivership if and when your offer is voted down . . . instead of protecting through administration the banks, creditors, employees, customers, contractors and shareholders of Ferranti.

'Or possibly, certain banks have denied a petition to allow administration.'

Mr Eugene Anderson, Ferranti's chairman, has told the group's 48,000 shareholders that if GEC's offer is not accepted by shareholders representing at least 90 per cent of the group's 1bn outstanding shares on December 8, the closing date for the offer, the banks will be asked to appoint a receiver.

There are some important differences between receivership and administration, according to Mr Robert Dow, an editor of PLC, the practical law magazine for companies.

The main duty of a receiver, who is generally appointed by a secured creditor such as a bank, is to protect the interest of the bank whereas an administrator is appointed by the court and protects the interests of the company and general body of creditors.

An administrator enjoys the benefit of a statutory freeze on enforcement of creditors' rights and remedies, a benefit which is not available to a receiver.

However, Mr Dow warned that administration was generally only advantageous when a company was experiencing temporary cash flow problems, or where no creditor was able or willing to appoint a receiver.

'If Ferranti's financial position is as bad as the company appears to say, with no immediately foreseeable improvement, it is difficult to see how shareholders could benefit from administration.'

In any event, secured creditors may be able to block an administration.

Under the Insolvency Act 1986, notice has to be given to anyone entitled to appoint a receiver as soon as a petition for an administration order is presented.

This means that if any of Ferranti's secured creditors, including the 15 banks which are owed some Pounds 100m, chooses to appoint a receiver under a properly drafted charge, administration would not be an option anyway.

Aberforth Split Level Trust is seeking to more than double its size by raising an addi-tional Pounds 51.5m after expenses. As with most recent trust issues, the funds will be raised via an offer of C shares at 100p each.

The investment trust, which invests in the shares of small companies, has a split capital structure, with income shares, capital shares and units (a combination of one capital and one income share).

In July 1994, the C shares will be convertible, either into a unit, or into one capital and one income share, at the option of the holder.

Trusts use the C share structure so that the two pools of assets are kept separ-ate until the money raised via an issue is fully invested. Conversion then takes place at prices based on the asset values prevailing at the time.

Irrevocable undertakings have been received to apply for 47.5m C shares. The balance of the offer, some 5.5m C shares, is available to the public.

Shares in Caledonia Invest-ments, the holding company controlled by the Cayzer family, rose 33p to close at 568p as a dull market welcomed its 27 per cent increase in net asset value per share at the half way stage and interim pre-tax profits up almost 30 per cent.

Net asset value rose to 625p (491p) after the cumulative write off of some 40p per share in goodwill on acquisitions.

Pre-tax profits, which reached Pounds 25m (Pounds 19.3m) in the six months to September 30, included a Pounds 3m profit on the sale of operations and investments.

Mr Peter Buckley, deputy chairman and chief executive, conceded that Pounds 128m (Pounds 140m) in cash and near-cash was not ideal against a background of low interest rates. He could envisage the company one day having gearing: 'We have received Pounds 427m since 1987 and we have been making selective purchases with an emphasis on finding our way into more trading situations since then.'

Profits from trading subsidiaries increased to Pounds 2.3m (Pounds 1.4m), reflecting an improvement in nearly all sectors. Income from associated companies also rose strongly to Pounds 12.4m (Pounds 5.9m) on the back of a good performance by Bristow Helicopters and the inclusion of a full six months profit from Exco, the money broker.

Income from investments fell by Pounds 900,000 to Pounds 6m because of a one-off dividend related to the flotation of the Telegraph received in the comparative period and a decision to book dividends at ex-dividend date rather than at cash received.

Earnings per share rose to 18.9p (14p) and the dividend is lifted to 5.4p (5p).

COMMENT

The company's recently-announced Dollars 44m (Pounds 29.5m) move into leisure overseas via a joint venture with some old business partners looks bold. But Caledonia's record for astute deals includes its sale of a controlling stake in British and Commonwealth Holdings just before the share price peaked and subsequent mopping up of some of B&C's businesses from administrators. The Cayzer caution means the net asset value per share is probably still less than what could be realised. Mr Buckley, himself a Cayzer, hopes there is more value in the unlisted associated companies which posted good results this time. If so, shares are trading at a discount to a net asset value which understates the worth of the company. Analysts forecast pre-tax profits of about Pounds 49m for the full year.

Recovery at Kewill Systems continued despite poor trading conditions and the software supplier said it should return to the dividend list by the end of the trading year.

Pre-tax profits of Pounds 1.76m for the six months to September 30 compared with losses of Pounds 172,000, restated for FRS 3.

Kewill had previously been expanding vigorously but high costs and management problems at a German subsidiary resulted in several months of reduced profits; the subsidiary has since been sold to its management.

Mr Kevin Overstall, chairman, said yesterday's results revealed the group's underlying strength.

The City, however, marked the shares down 7p to 253p.

Turnover from continuing operations was Pounds 16m, compared with Pounds 14.2m.

Operating profit rose 29 per cent from Pounds 1.53m to Pounds 1.97m, while earnings per share were 10.15p (losses of 3.58p).

Mr Overstall said the company had been successful in petitioning the High Court to sanction a capital reduction to eliminate the deficit on distributable reserves; in consequence the company should be in a position to declare a dividend with its full year results.

He said prospects for the second half would be constrained by economic conditions in the UK but that US operations, which doubled operating profits in the first half of the year, were expected to grow strongly.

The battle for control of Paramount Communications was thrown wide open yesterday as a Delaware court removed the main poison pill provision designed to protect a friendly Dollars 9.6bn (Pounds 6.4bn) merger with Viacom.

The Delaware chancery court backed a challenge by QVC Network to a Dollars 500m arrangement aimed at thwarting its hostile bid for Paramount. But the court failed to overturn a separate Dollars 100m poison pill provision.

The embattled Paramount board, which has refused to enter discussions over QVC's bid, attacked the court's decision and said it was launching an immediate appeal in the Delaware supreme court. Viacom also said it was appealing.

Yesterday's ruling tilted the takeover battle back towards Mr Barry Diller's QVC. The home shopping channel had said that it would not proceed unless the poison pills were removed. However, the contest is expected to be drawn out for at least another two weeks as the case passes to the state supreme court.

The arrangement overturned by yesterday's court ruling would have given Viacom the right to buy nearly 24m Paramount shares at its original bid price of around Dollars 69 a share, had it lost the battle for the film and television production company. This is around Dollars 21 a share less than the Dollars 90 a share in cash offered by QVC for 51 per cent of Paramount, with the balance to be paid for in securities.

QVC failed in its second court application to overturn an agreement under which Paramount would pay Viacom Dollars 100m if it fell to a higher bidder.

'This to some extent levels the playing field between the two sides,' said Ms Margo Vignola of Salomon Brothers. 'It's being appealed, but the sentiment of the court was pretty clear' that the main takeover barrier should be removed, she said.

Viacom's offer for Paramount was due to expire at midnight last night, and the company was expected to extend its bid pending the outcome of the appeals.

Paramount's share price jumped by Dollars 3 5/8 to Dollars 80 1/8. QVC's share price slipped by more than Dollars 3, to Dollars 45 3/4, reflecting fears that a successful QVC bid would dilute the company's earnings, though it later recovered to close at Dollars 47 3/4. Viacom's A shares climbed Dollars 3 to Dollars 50 3/4.

----------------------------------- UK ----------------------------------- ABI Leisure 26 Aberforth Split 24 Aim 24 Alba 24 Anglo Irish Bank 26 Azlan 24 BPP 26 BSG Intl 24 British Midland 25 Caledonia Invs 24 City of London PR 26 Concentric 25 Cosalt 26 DFS Furniture 24 Dunedin Worldwide 26 F&C Emerging Markets 26 Fairbairn European 25 Falcon Holdings 26 Ferranti 24

Goodhead 25 Hozelock 24 Kewill Systems 24 Kitty Little 26 Kwik Save 23 Lowndes Lambert 24 ML 25 Merrett 24 Optometrics 24 Osborne & Little 25 Platignum 25 PowerGen 23 Scottish Hydro 26 Scottish Power 26 Tate & Lyle 24 Tex 26 Thorn EMI 24 Transmanche Link 24 Wagon Industrial 24 Wentworth Intl 26 -----------------------------------

Overseas ----------------------------------- Air Canada 28 American Airlines 28 BF Goodrich 28 Bank Hapoalim 28 Bombadier 24 Canadian Airlines 28 Chubu Electric Power 28 Deutsche Bank 27 Elf 27 EMI 28 Euro Disney 23 Finmeccanica 28 Fujitsu 28 Guoco Group 28 HSBC 28 Kansai Electric 28 Metallgesellschaft 27 Nestle 27 Nobel Industries 27 Renault 27, 23 Royal Bk of Canada 28 Ryder 28 SAS 25 Stora 27 Tokyo Electric Power 28 Volvo 27, 23 Wacoal 28 Walt Disney 23 Warner-Lambert 28 -----------------------------------

Record UK profit and currency gains helped Tate & Lyle to increase annual pre-tax profits by 17.4 per cent to Pounds 222.5m. That was above market expectations, which had been revised downwards in September when the sweeteners company warned of difficult trading conditions in the North American sugar market.

The shares gained 9p to 395p. A final dividend of 8.7p is proposed, which would raise the total from 12p to 13p, in line with Tate's policy of a 'progressive' dividend.

Mr Neil Shaw, chairman, said the outlook for the current year was encouraging, with productivity gains and improved trading conditions expected.

He emphasised that Tate is primarily a processor of agricultural products and is exposed to influences such as the weather, crop sizes and government regulation. The group's main problems in the year were a bumper sugar beet crop in the US, leading to lower prices and government imposed limits on sales, and a glut of potato starch in Europe, hitting prices there. In each case, conditions were expected to improve in 1994.

Mr Shaw said he was 'very pleased' by the approval given to the Nafta trade agreement in the US. Tate plans to expand its interests in Mexico, where it has a starch plant.

Tate is expanding in many developing countries, where the growth in consumption of its products is concentrated. In central Europe, it has set up a number of joint ventures, although it has yet to earn a normal return on its investment. Tate is now looking to establish joint ventures in China and south-east Asia.

Mr Paul Lewis, finance director, said cash-flow had been strong. Net debt fell by Pounds 15m to Pounds 627m, although the weak pound meant the translation of the group's debt, which is largely in US dollars, added Pounds 94m to borrowings.

Gearing was 78 per cent at the year end, down from 89 per cent a year earlier, in spite of a Pounds 20m write-down of UK property values. Mr Lewis said with interest cover of 5.7 times, up from 5, and given that it had written off Pounds 500m of goodwill over the years, the group was comfortable with its balance sheet.

Details, Page 24 Lex, Page 22

Kwik Save, the UK's leading discount food retailer, yesterday unveiled a 14 per cent rise in pre-tax profits to Pounds 126.1m, but admitted the supermarket price war would make it hard to maintain its sales and profits growth of recent years.

Mr Graeme Bowler, Kwik Save's chief executive since June, said there had been an 'unprecedented surge' in price competition as superstore chains had woken up to the changing nature of the UK food market.

'I think the superstores have done a wonderful job for years of pulling the wool over customers' eyes, and telling them it really doesn't matter how much they spend on food,' he said.

That had opened the way for the discount sector - a problem which the superstores were now addressing. 'It will be harder to maintain the rate of growth in sales and profits we have experienced over the last five years,' he conceded.

Mr Bowler vigorously countered City fears that Kwik Save had lost its edge on price by extending its range. He said its wider range, including leading brands at very low prices, set it apart from the 'limited offer of mainly unknown brands' provided by newcomers to the UK discount market such as Germany's Aldi, Denmark's Netto, and France's Ed.

Kwik Save's sales for the year to August 28 increased 14.4 per cent to Pounds 2.86bn.

Some 8.4 percentage points of the increase came from existing stores, with 'no discernible inflation' in selling prices. That meant Kwik Save's sales growth was ahead of the leading superstore chains, which have been seeing negligible underlying growth in recent years.

New stores added 6.1 points, with a handful of store closures removing 0.1 points.

Mr Derek Pretty, finance director, said gross margins were down slightly. That resulted partly from rising sales of lower-margin liquor and tobacco, but also from Kwik Save's policy of investing gross margin in lowering prices to drive volumes. He added, however, that Kwik Save had been able to pass some margin pressure on to its suppliers.

The operating margin fell from 4.2 per cent to 4 per cent.

Mr Pretty also emphasised the group's strong cash-flow, which enabled it to spend Pounds 103.2m on 69 new stores, store refits and new systems, without borrowing. Capital spending is expected to increase to Pounds 120m next year, with up to 80 new stores to be added to the 814 trading at the year end.

Income from concessions within Kwik Save stores selling fresh foods - an important part of the Kwik Save formula - increased 23 per cent.

Earnings increased 15.1 per cent to 55.49p. The final dividend was 12.9p, bringing the total for the year to 18.3p, up 14.4 per cent. The shares closed down 9p at 573p.

Lex, Page 22

Volvo's struggle to win approval for the planned merger of its car and truck operations with France's Renault suffered a serious blow yesterday when the first institutional shareholder to declare a final position said it would vote against the deal.

Although the so-called Fifth Fund state pension fund holds only 1.3 per cent of Volvo's voting capital, its rejection indicated that Volvo's intensive effort to overcome objections by large Swedish shareholders had failed.

Meanwhile, Mr Louis Schwei-tzer, Renault chairman, told the FT that a rejection of the planned merger would damage existing co-operation between Volvo and Renault. 'The momentum would disappear,' he said. He added that the disruption to the merger process had already destabilised efforts to build a joint management organisation.

Mr Schweitzer stressed the industrial logic of the proposed merger. The cost savings which would result through joint purchasing, research and development and economies of scale would strengthen the two companies' car and truck operations.

The outcome of a vote by Volvo shareholders on December 7 may now swing on a decision expected today from another state pension group, the Fourth Fund. It is Volvo's second-largest shareholder after Renault, with 7.5 per cent of the voting capital against the French group's 10 per cent.

Mr Bert Ekstrom, chief executive of the Fifth Fund, said the fund rejected the merger because of uncertainties over the values implied in the agreement, which proposes a 35 per cent share for Volvo in the merged company.

He said the fund - which is governed by trade union, local government and state industry representatives - was also sceptical about French commitments to privatise Renault, in spite of assurances from Mr Edouard Balladur, the French prime minister, on the timing of the privatisation and on the golden share that France intends to hold in the merged company.

Renault chief stands firm, Page 27

PowerGen, the power company, yesterday floated the idea of a significant change to price determination in England and Wales's electricity trading pool as it revealed a 10 per cent rise in pre-tax profits to Pounds 108m.

The suggestion comes ahead of a decision later this year by Professor Stephen Littlechild, the industry regulator, on whether to refer PowerGen and National Power, the other large generator, to the Monopolies and Merger Commission. His inquiries have been prompted by sharp pool price rises.

Mr Ed Wallis, PowerGen chief executive, said there was a strong argument in favour of the main determinant of the pool price being the average price of all generating plant needed to run the system.

The main determinant of the existing system is the 'marginal' price, that is the cost of the most expensive plant. Invariably the marginal plant is owned by either National Power or PowerGen, who critics say have too much influence.

Mr Wallis said moving to an average price system would overcome the perception that two big players dominate the pool.

PowerGen's interim figures for the six months to October 3 showed the company's turnover fell 3 per cent from Pounds 1.3bn to Pounds 1.27bn. Earnings per share were up 13 per cent to 9.71p (from 8.58p) and the dividend, already announced, rises 18 per cent from 3.35p to 3.95p.

Mr Wallis said market share fell marginally from 26.3 to 26.1 per cent and predicted it would reduce to 22 per cent by 1998. This compares with 30 per cent at privatisation three years ago.

The half year's performance was helped by a reduction of 200 in job numbers to 5,770 and a fall in coal stocks from 15.5m tonnes to 14.25m.

The company expects to cut stocks to 5m tonnes by 1997-8, with most of the reductions achieved in the next two years. In contrast to National Power, PowerGen is not expecting significant closures of power stations by the end of the decade. Mr Wallis said it was possible all 11 stations could survive until the next century, although it was unlikely that two, High Marnham and Drakelow, would survive much after that.

The company charged Pounds 12m to the profit and loss account, the same as last year, but unlike National Power did not make adjustments for the positive effects of a European Community ruling on pensions.

An adjustment of about Pounds 16m is likely for pensions at the year-end results. Of the half-year charge of Pounds 12m, some Pounds 9m related to liability and damage claims.

Sir Colin Southgate, announcing his first results as PowerGen chairman, said performance this year had been up to expectations.

Lex, Page 22; Scots developing power to invade England, Page 26

Mr Michael Eisner, chairman of Walt Disney, marked the occasion of his signing of the agreement in 1987 to open the EuroDisneyland theme park in France, by presenting Mr Jacques Chirac, then the French premier, with an original slide from a Disney cartoon - the witch handing the poisoned apple to Snow White.

This choice now seems eerily appropriate as Disney starts the painstaking process of restructuring the finances of Euro Disney, which earlier this month reported a net loss of FFr5.3bn (Pounds 600m) for the year ended September. The US group must somehow coax, or bully, the 60 international banks that own Euro Disney's FFr20.3bn debt to agree to a radical refinancing.

Disney last week kicked off negotiations by convening a special meeting in Paris with the banks, which are believed to include Banque Nationale de Paris, Caisse des Depots and Indosuez of France, and Merrill Lynch of the US. The banks are hurriedly assembling a steering committee (expected to be led by Indosuez or BNP) to spearhead their discussions with Disney.

The banks are bracing themselves for a tense game of financial poker against Disney which, under Mr Eisner (or 'Ice Man Mike' as he is known in the Hollywood film industry) has become renowned as one of the toughest companies in the US.

The crux of Euro Disney's problems is that it is crushed by its financial structure. It cannot afford to service the FFr20.3bn net debt with which it is burdened after exceeding its construction budget and the drain on cash-flow resulting from its trading difficulties.

Euro Disney says it is still self-financing, but admits that it is likely to run out of money early next year. Disney has agreed to bail it out, but has stressed it will only do so for 'a limited period' to enable Euro Disney to restructure its finances 'by spring 1994'.

The main aim of Disney and Euro Disney, advised respectively by Lazard in New York and SG Warburg in London, is to reduce Euro Disney's debt to a manageable level. Analysts suspect that they hope to halve the debt to around FFr10bn. This could be achieved by a combination of a debt-for-equity swap by the banks; by bringing in new equity partners on a deeply discounted basis; and a rights issue for existing shareholders.

Disney's main negotiating weapon against the banks is to threaten to close EuroDisneyland unless they agree to rescue it. In theory Disney could afford to do so. Indeed it could argue that it cannot afford not to, given that Disney's share of Euro Disney's losses dragged it into the red with a net loss of Dollars 77.8m in the fourth quarter of its last financial year. Ms Margo Vignola, analyst at Salomon Brothers in New York, described Euro Disney as an 'albatross' for its US parent.

If Disney did withdraw, the banks would have to write off their entire exposure of FFr20.3bn to Euro Disney. The banks are gambling that Disney, which until the present debacle was seen as one of the US's most successful companies, would be loathe to tarnish its gilded reputation by admitting defeat in Europe. They are expected to press Disney to play its part in alleviating Euro Disney's financial plight.

Disney would be expected to participate fully in a rights issue but it is highly unlikely that it would agree to provide further capital. If it raised its stake above the present level of 49 per cent it would, under US accounting regulations, have to consolidate Euro Disney's debt on to its own balance sheet.

However the banks could try to force Disney to reduce its income from Euro Disney. The US parent has already agreed to waive its 'management fee' of 3 per cent of Euro Disney's revenue until the company is profitable. The banks might ask Disney to cut the 'royalty fee' of 10 per cent on admissions and 5 per cent of food and merchandise sales. This fee totalled FFr262m last year.

Meanwhile Disney hopes that the French government, anxious to protect the more than 10,000 jobs created at EuroDisneyland, will 'encourage' the banks to bail it out. One option would be for the Caisse des Depots, the state-controlled financial institution, to reduce the 7.8 per cent interest rate levied on its FFr4.8bn of Euro Disney's debt.

In the meantime Euro Disney's finances are deteriorating, as illustrated by yesterday's 18.6 per cent fall in the share price to a new low of FFr27.20, which could depress the potential proceeds from a rights issue. As the two camps prepare for battle, the 'poisoned apple' is rotting away.

World Stock Markets, Page 37

The British Telecommunications board has given the go-ahead for a multi-million-pound market trial of its video-on-demand television service.

It is the first step in BT's ambitious plan to deliver feature films and other television programmes to consumers' screens in more than 20m UK homes through its telephone network.

If the initial experiment is a success BT will move on to a large scale trial involving 250,000 homes and investment in the region of Pounds 50m.

BT has already demonstrated sending good quality television pictures down ordinary telephone lines at the same time as the lines are being used for ordinary telephone conversations.

The aim is to offer subscribers a wide range of entertainment and information services from data bases for a fee.

About 2,500 homes in the Colchester area of Essex will be chosen for the initial commercial trial which will get under way next year.

BT engineers believe as many as 90 per cent of the 23m homes connected to its network would be able to receive the digitally compressed pictures.

According to potential programme suppliers to the BT service the BT board decided to go ahead with the commercial experiment after a boardroom demonstration of the technology earlier this month.

The Independent Television Commission said in September that its legal advice suggested that true video-on-demand, where individual subscribers choose their own programme or service from a database, would probably not need a local delivery, or cable licence, because it was not a broadcast service.

If video on demand, which requires a special digital box to receive the pictures, were to take off it could pose competition for video shops and to a lesser extent cable and satellite television.

The Ulster Unionist leader Mr James Molyneaux urged Mr John Major yesterday to drop his search for a comprehensive constitutional settlement for Northern Ireland in favour of a drive to establish a new Ulster assembly.

Mr Molyneaux, who holds an effective veto over the prime minister's efforts, said the groundwork for all-party talks on devolved government could be completed within two weeks.

Resumed talks should focus on the creation of the 85-seat legislative assembly - the model for which was drawn up in abortive talks last year.

In an interview with the Financial Times, Mr Molyneaux said there was 'a fair chance' that Mr Michael Ancram, the Northern Ireland minister, would be able 'within a week or two' to identify common ground between the province's political parties. That 'will enable us to start the process of restoring accountable democracy for Northern Ireland'.

His comments came as Mr Major appeared to improve strained relations with the Rev Ian Paisley by telling the leader of the hard-line Democratic Unionist party that proposals for a political settlement leaked in Dublin last week were totally unacceptable.

In spite of the latest setbacks, Downing Street signalled Mr Major's determination to press on with efforts to find a settlement by announcing that he had set up a group of senior ministers to oversee policy. Mr Albert Reynolds, the Irish prime minister, also sought to reassure unionist politicians that fears about Dublin's intentions were groundless.

But Mr Molyneaux said the Major-Reynolds initiative was doomed. Dublin would give up its constitutional claim to Northern Ireland only in return for 'something which has the same effect as the territorial claim'.

Asked if they should break off negotiations, he responded: 'Well, it's futile, isn't it, because unless they could get agreement to something which was as significant and acceptable to the IRA as joint authority leading on to Irish unity, then it is not going to make any difference to the so-called peace process.'

It made sense for the two leaders to meet regularly: 'But what I think they ought to be realistic about is the fact that the two governments cannot really influence the decisions of Mr Adams and his cohorts in the IRA.'

Mr Molyneaux said the Dublin proposals offer 'a structure that would bring about the unification of the national territory'. The draft paper had 'all the designs and a good many of the paragraphs' of the initiative launched by Mr John Hume, leader of the mainly Roman Catholic SDLP, and Mr Gerry Adams, president of Sinn Fein. He described the Hume-Adams plan as a 'fiendishly clever operation' to secure Irish unification.

Mr Major's search for a comprehensive agreement between London, Dublin and the Northern Ireland parties had 'lost a great deal of its validity', he said.

The IRA could be defeated only by tougher security measures, Mr Molyneaux added. He backed the reintroduction of selective detention, or internment.

Mr Molyneaux sets his terms, Page 8

China plans to spend 700bn yuan (Pounds 81bn) by the year 2000 to overcome chronic transport infrastructure problems restraining economic growth.

The official Xinhua news agency says China will pour funds into building railways, highways, waterways, pipelines and civil aviation facilities.

Foreigners will be encouraged to invest in Chinese infrastructure as partners in joint ventures or as sole operators. Hong Kong entrepreneurs are already deeply engaged in infrastructure projects, including toll roads, ports and power stations.

Reports by the World Bank and other institutions cite inadequate transportation as one of the main barriers to faster and more orderly economic development. The new infrastructure blueprint includes:

A plan to boost the total length of railways from 53,000km to 70,000km. Rolling-stock capacity would be increased by 20 per cent to help meet demand in an economy expected to grow by 8-9 per cent annually.

A road-building programme to add about 200,000km to the country's inadequate network. Only 6,000km of the present 1.02m km are classified as highway, properly paved and consisting of more than one lane each way.

Doubling the number of ports to 600. An estimated 50 per cent of ships calling at China's cargo-clogged ports have to wait days before unloading.

Xinhua said 'bolder steps' would be taken to encourage foreigners to invest in China's infrastructure. The agency did not specify what that meant, but the Chinese authorities have been aggressively seeking outside help by offering a range of incentives for build-operate-transfer projects.

'While continuing to use loans provided by the World Bank and foreign governments, China will welcome foreign investors to run joint ventures or solely owned ventures in the construction of railways, highways and civil aviation facilities other than air control systems.'

China and South Korea agreed yesterday to build a 570km undersea telecommunications fibre-optic cable to carry 15,000 telephone lines. The agreement reflects growing trade links between the two countries.

Tate & Lyle's share price is now back to within spitting distance of where it was when the company issued its profits warning in September. In the light of worries elsewhere in the food sector that is a doubly commendable performance, so there are grounds for wondering whether the warning was necessary in the first place. Doubtless companies should not allow expectations to stray too far out of line. But it also helps to massage expectations. On that basis, incidentally, it is hard to see many being willing to correct assumptions that are too low. The important thing is to pre-empt disappointment on the day. Attention yesterday focused less on Tate's mere 17 per cent increase in profits than on the thought that its prospects are slowly improving.

Last year, currency movements accounted for nearly two thirds of the increase in profits. This year the emphasis should be more on underlying growth, with improvement in the US stemming both from higher sugar prices and from cost cutting at Staley. There should also be some recovery of the European sweetener market.

Together with Tate's strong cashflow and its own estimate that changes in the last budget defer the onset of an ACT problem till 1996, this leaves scope for continued dividend progression. Tate will doubtless hope that this pushes its share price high enough to encourage conversion of its preference shares. Interest cover of 5.7 times leaves little to fear in gearing of 78 per cent. A lower figure would provide more flexibility for expansion nevertheless.

Kwik Save's full year figures cast little light on what the future holds. While European discount chains have long been a threat, the big guns of UK food retailing started cutting prices only after the financial year end. The performance of Kwik Save's shares reflects as much: holding up well to the end of August but falling by 20 per cent since. More important than the 14 per cent rise in profits, then, is the message that sales growth is now slowing as competition takes hold.

Having set out its stall as a discount chain, Kwik Save has little option but to match J. Sainsbury and Tesco on price. Margins are being defended by asking suppliers to fund price cuts. As a champion of branded goods, Kwik Save holds strong cards in such negotiations. But manufacturers can only be squeezed so far. Kwik Save has in the past sacrificed margin in favour of volume growth and it would be strange if the company reacted differently to this latest challenge. How far margins might have to fall to keep sales moving is in the hands of the competition.

With a return on capital higher than its peers - and a store opening programme funded entirely out of cashflow - Kwik Save can afford to keep expanding even as the pressure builds. But new stores alone will not deliver earnings growth if margins are falling elsewhere. If returns on new investment turn out to be much lower than in the past, the argument for spending less and distributing more to shareholders will be compelling.

The heavy provisions which both PowerGen and National Power carry mean that they look more like Swiss banks than electricity companies. PowerGen topped up another Pounds 12m yesterday, offsetting the Pounds 11m it has spent in the first half. The provision was to index the present value of long tail liabilities, but the Pounds 300m total it has stashed away for a rainy day looks excessive for such a well capitalised company. The latitude allowed finance directors to interpret the blurred border between prudent accounting and profit-smoothing is something the Accounting Standards Board could usefully address.

Another of the generators' little nest eggs is also beginning to hatch. PowerGen's coal stocks fell by 1.25m tonnes in the first half - releasing Pounds 46m in cash. If its stocks decline to 5m tonnes over the next 2 years, working capital will be cut by a further Pounds 300m. With such a cast iron balance sheet, the company is hoping that diversification will make its capital work harder. If that induces a justifiable queasiness, at least PowerGen has proved itself a good project manager on its mainstream capital expenditure programme.

It will be difficult, however, to find sufficiently attractive projects to put the company's financial power fully to work. If PowerGen is as prudent as its accounting, shareholders may see some of their equity returned. That will only increase the financial attractions should the generators avoid a blind date with the Monopolies and Mergers Commission.

From the government which brought the nation the farcical ITV franchise auctions comes another blockbuster of legislative muddle. For the second time in as many years, the government is proposing to tamper with the industry's structure, turning the quoted television sector into a speculator's playground. The proposed relaxation of the franchise rules has already resulted in stock market mayhem as investors anticipate a rash of takeovers reducing the 14 ITV companies to just eight. A failure of bids to materialise will produce some nasty crashes.

However, it would be surprising if Granada did not now tilt at LWT. It is also a racing certainty that Carlton will bid for Central, although the OFT may worry about its combined share of ITV advertising revenue. Both these targets could, of course, make bids themselves to try to evade takeover. The hypothetical bidding scenarios which could result are mind-boggling.

The change in the rules will throw up unmissable opportunities to grab a bigger slice of the ITV network. It could still be tricky to make the takeover sums work. Television companies are relatively transparent and bidders will have a good idea of their target's current worth. But the ITC's insistence on regional programming will prevent the wholesale rationalisation of costs. Moreover, ITV companies will require rights issues to fund acquisitions. Yet they will have to raise money in ignorance of the future shape of the industry and with the fate of the BBC and the laws governing cross-ownership of the media still hanging in the balance.

The number of quangos in the UK is increasing at a significant pace, taking more and more power away from local government. The trend is at odds with the renewed interest in local accountability, as manifested in the work of the Local Government Commission and urban partnership projects such as City Pride.

Health authorities, training and enterprise councils (Tecs), development agencies and housing trusts are all quangos that operate at a local level with substantial budgets and powers. But all are nationally appointed by the relevant secretaries of state, and, as a consequence, have doubtful credentials when it comes to accountability and legitimacy.

Few wish to see such bodies again run directly by local authorities. But there is a widely recognised need for reforms to make such bodies more accountable and more responsive to the main users. What is needed is better accountability and more efficiency, both of which can be nurtured by more 'contestability'. It would involve two innovations: first a new approach to appointment; second a new public power of dismissal.

Appointment of bodies such as health authorities would be the responsibility of an 'appointment commission' representing the set of democratically elected institutions with a legitimate interest in the make-up of the relevant organisations. This could take the form of one-third national government, one-third local government and one-third other stake-holder interests agreed by both groups.

The appointment of a new board would be announced publicly, with a six-month lead-in time. Their first budgets would also be made public, providing a transparent framework for potential bidders. It would then be open to any group to apply to become the board, just as a contractor would bid to run a local service. These bidders might range from companies or groups of local government officers to campaigning organisations. Bidders would be required to set out their plans: the targets (if any) they aim to achieve; their management approaches; their business plan; and how they would meet their goals within the stated framework budget. The 'appointment commission' would then, by successive rounds of elimination, choose a winner.

This model has several virtues. It would encourage creative 'coalition building' - for example, between groups of doctors, administrators, health activists and general practitioners. It would be difficult for a board to represent only a narrow range of interests, and almost impossible for it to be used as an arm of party patronage as is often the case at present. It would encourage the evolution of more co-operative structures - strategic alliances between different kinds of intermediate body would probably result. And it would make criteria of evaluation transparent, since each bidder would set out what it aimed to achieve and could be called to account at a later date.

The second requirement is to inject a credible competitive threat: a mechanism whereby a board can be removed if it under-performs. This could work very simply. If a board is deemed to be acting against the public interest, the relevant electorate would be able to petition for its removal. Five per cent of the population covered by a particular body - whether a Tec, health authority or urban development corporation - could sign a formal petition to demand a referendum on whether to retain the current board make-up. Ideally this would coincide with a local or national election. If the referendum went against the incumbents, by a simple majority, the appointments procedure would be set in motion to choose an alternative group. The approach would mimic purer democratic forms, but would only need to be used in extremis, given the difficulties involved in mobilising 5 per cent of any population. Such a power of removal could dramatically influence the behaviour of such boards.

The idea has an interesting parallel. The task for public policy makers in monopolistic industries has been to replicate some of the effects of competition by making market entry easier. In the utilities the regulator's task is to ensure that, even without the reality of competition, the threat - termed contestability - of competition forces managers to behave more efficiently.

In governance, too, there is now a need for more imaginative mechanisms which can marry accountability and efficiency and an appropriate level of public involvement. Contestability offers a good alternative to Whitehall patronage on the one hand and Town Hall patronage on the other.

The author is director of Demos, an independent think tank

International peace efforts in Bosnia, of which so many have come to grief, are understandably greeted with increasing scepticism. But the latest initiative of the European Union has the merit of once more directly involving governments in the negotiations, instead of putting all the onus on the two international negotiators, Lord Owen and Mr Stoltenberg. That might just give the whole exercise more weight, particularly since US and Soviet representatives have been asked to join the twelve in the talks due to start in Geneva on Monday.

The proposal agreed by the EU foreign ministers this week seeks to adopt a hard-headed approach, which is a far cry from the abortive Vance-Owen plan, with its emphasis on an equitable division of the three ethnic communities into provinces within a unitary Bosnian state. It offers a progressive suspension of international sanctions against Serbia if Bosnia's Moslems are given 3 to 4 per cent more land than they were offered in last September's plan for the partition of the country into three ethnic mini-states.

That is a realistic proposition, at least in principle, since Bosnia's Moslem-dominated parliament rejected the plan precisely because it fell short by some 3 per cent of the Moslems' territorial demands. Yet it is bound to be criticised by those who feel that the Bosnian Serbs have already been amply 'rewarded' for their ethnic cleansing policies by retaining much of the land that they have conquered by force of arms.

Mr Slobodan Milosevic, the Serbian president, who has called a general election next month, would undoubtedly greatly benefit from a lifting of sanctions. These have caused immense hardship both in Serbia and its ally Montenegro, provoking serious shortages of all kinds and unprecedented levels of hyperinflation and unemployment.

Whether Mr Milosevic can deliver the Bosnian Serbs, however, is quite another matter. Whereas he can probably twist the arm of Mr Radovan Karadzic, the Bosnian Serb political leader, it will be much harder to bring the military into line. The new plan has already been rejected by Gen Ratko Mladic, the hardline commander-in-chief of the Bosnian Serb army, whose contempt for agreements reached by political leaders appears to be a matter of reflex.

This is a serious problem, since the military on all sides have a vital role to play in guaranteeing the safe passage of United Nations relief convoys at a time when harsh winter weather is threatening the lives of hundreds of thousands more Bosnians.

Unless the talks make progress, this may be the last winter of UN involvement in Bosnia. The main contributors to UN forces in the former Yugoslavia, such as France and Britain, are now seriously thinking of withdrawing their troops next year if the political stalemate continues. Serbia would then face continued war, tougher sanctions and no prospect of an end to its diplomatic isolation.

The process of change in Italy has acquired a new and more chaotic rhythm. Until last Sunday's local elections, the ruling parties looked capable of either delaying or blocking genuine reform of the political system. But the spectacular collapse of support for the Christian Democrats and their allies has removed this possibility.

The system of political and economic power, constructed and refined over four decades by the Christian Democrats and their henchmen, has begun to implode. In parliament, where their four-party coalition notionally enjoys a working majority, they account for no more than 15 per cent of the national vote. Yet these discredited parties are meant to be the pillar of parliamentary support for the government of Mr Carlo Azeglio Ciampi.

This raises worrying questions, not only for Italians, who initially reacted with mindless shock to the new political geography, but also for Italy's international partners, concerned about the country's governability, its commitment to tackle public finances and press on with ambitious privatisation plans.

The fears are genuine, reflected in the sharp falls on the stock market and the decline in the value of the lira in the early part of the week. However, they need not be exaggerated, provided Italians retain their fine sense of self-preservation and choose not to shoot themselves in the collective foot by backing away from reform.

'Throughout the period of change since the general elections (April 1992), the political parties have always been brought face to face with reality by the markets,' claimed one senior politician.

'In other words, when things get chaotic here, we are reminded of the consequences by pressure on the lira and losses on the bourse. Equally, Italy wants to be a responsible member of the international community and there are limits as to how irresponsibly we can behave at home.'

The previous government of Mr Guiliano Amato cleverly exploited this argument to the full in steering reforms and the budget through parliament last year. Mr Ciampi, persuaded to leave the governorship of the Bank of Italy to become prime minister in May, may lack the political background to play this game of political balancing. Nevertheless his experience as a central banker should give added weight to his insistence that Italy's credibility now depends on quick approval of the 1994 budget.

He also managed to persuade Mr Achille Occhetto, the leader of the former communist Party of the Democratic Left (PDS), to come out on Tuesday with a formal statement backing the budget. Mr Occhetto, fresh from the success of his party in the municipal elections and a possible partner in a future government, demonstrated he has every interest in appearing a responsible figure. Behind the bellicose rhetoric of Mr Umberto Bossi, the leader of the Northern League, a similar realism probably lies.

The budget envisages raising L32,000bn (Pounds 13bn) through extra taxes and spending cuts to hold the public sector deficit to below 9 per cent of gross domestic product. The bulk will come from sharp reductions in spending in all ministries, as well as through a shake-up of the civil service. Parliament has been quietly seeking to erode parts of the austerity package and preserve the public administration from predatory cuts; thus there is a sizeable element in both houses with an interest in altering the budget and weakening both the fiscal side and the spending cuts.

However, the government is ready to resign if the budget fails to pass before the end of the year - as it must by law. Were the government to leave en masse, parliament would almost certainly be unable to approve legislation altering electoral constituencies.

Further, the fall of the Ciampi government on the budget issue would leave no alternative but to go to the polls immediately, without constituency changes. This would make a mockery of the new first-past-the-post system because electoral boundaries would not have been redrawn. Despite the rumblings from some Christian Democrats and Socialists, it is therefore hard to see the budget failing.

The parties' sense of realism will ride side by side with a ferocious battle for political power, however. This has been all too evident as more and more of the dying regime's dirty linen floats to the surface. In the past two months the Italian public has been treated to stories of a rebellious military preparing coups, and revelations about the misuse of secret service funds to bankroll the private lives of politicians.

So much mud has been flying that some at least has stuck to every institution, including the presidency. President Oscar Luigi Scalfaro was obliged to go on television at short notice to deny reports that when he was interior minister he knew about the misuse of secret service funds. This is the one ministry the Christian Democrats have never relinquished since 1946, and it has influenced some of the most sensitive aspects of national life. It is widely believed to have sat on the truth about many poorly explained events, including links between politicians and the mafia and the kidnap and killing of former premier Aldo Moro.

As the old edifice crumbles, everyone is simultaneously quarrelling over the inheritance and desperately laying down markers for a stake in the next republic. The existence of so many latent scandals, to say nothing of the ongoing corruption investigations, is a potent destabilising element. But the collapse of the old parties reduces the relevance of such muck-raking since it affects people and institutions on the way out.

The timescale in which the political parties have to regroup or recycle themselves is very tight if elections are to be held in March, as expected. The need to regroup explains why the Christian Democrats and their allies will still do all they can to put back the date as late as possible.

Even during the summer, after an earlier round in June of poor municipal election results, the Christian Democrats were still confident of remaining the country's largest party. Having conceded hegemony in the north to Mr Umberto Bossi's Northern League, the party had hoped to remain the dominant force southwards from Rome, leaving central Italy, the old 'red belt', to the PDS.

This scenario no longer applies. The league has established itself as the dominant force in the north with one third of the vote; while the neo-fascist MSI has emerged to take a similar share from Rome southwards. The only party capable of a sizeable national presence is the former communist PDS.

The rise of the MSI, which owes its inspiration to the corporatist state and law and order policies of Mussolini, might seem perverse. But on closer inspection it has captured those who have deserted the old ruling parties and are reluctant to endorse the left. The new electoral laws for local elections encourage a polarisation of politics - and the electorate has simply opted for the few parties untainted by power or corruption.

The full impact of the MSI cannot be assessed until after the run-off in mayoral elections, due on December 5. In Rome Mr Gianfranco Fini, the MSI leader, is challenging Mr Francesco Rutelli, the Green candidate backed by the PDS and a leftist alliance. In Naples, Ms Alessandra Mussolini, grand-daughter of Il Duce, is in a run-off against the PDS and its allies.

If the PDS and its supporters fail to win both cities it would be a serious blow and the political panorama would be even more confused. On present form, it would mean that in the run-up to the next general election there would be absolutely no clear alliance likely to form a stable government. But at the moment, even one day is a long time in Italian politics.

Terry Maher, the recently ousted boss of Britain's second biggest chain of booksellers, need look no further for the title of his forthcoming memoirs, mentioned in Observer last week.

'Maher Maher Black Sheep', a reader helpfully proposes.

A stockbroker offering to sell 20,000 shares when he meant to sell 2,000 might be considered unfortunate. But to try to sell 200m shares worth Dollars 1bn - as Thai stockbroker Phatra Thanakit did the other day - is mind-boggling, especially since the company in question, Ayudhya Investment and Trust Co (Aitco), only had 25m shares in issue.

Rival Bangkok brokers spotted the error and started buying more of the non-existent stock - adding to the problems of the well-connected Phatra, which co-operates with SG Warburg in researching Thai companies.

Phatra's shares were suspended, much to the embarrassment of Phatra's president, Viroj Nualkhair, who is also vice-president of the Stock Exchange of Thailand. Luckily for him and his firm, the stock exchange cancelled the relevant transactions, but not before more than 18m Aitco shares had been bought.

A post-mortem is being conducted to find out how the extra five zeros crept into the sell order from a sub-broker. But if it simply blames a faulty computer, then the central issue will just have been ducked.

Did Phatra contravene the regulations, by allowing sub-brokers' orders to be routed automatically through its computer system to the market?

Nestle may be the world's largest producer of mineral waters, but it's imbibing too much carbonated water for its own good - its pronouncements are getting a little windy.

It trumpeted yesterday the establishing of the Institut de l'Eau Vittel-Perrier, to carry out research in all matters pertaining to its wondrous products.

Ramon Masip, a colourful Catalan who heads Nestle's food businesses, managed to keep a straight face when explaining the sorts of things this cutting-edge institution would investigate; the effects of various minerals on health and digestion; the influence of various containers on the taste and shelf life of mineral waters; and improved drilling techniques to prevent impurities leaking into underground pools.

Oh yes, he added, it would also be good for publicity.

Michael Heseltine, Britain's secretary of state for trade and industry, proffered some advice to those gathered at the Institute of Directors' dinner on Tuesday evening.

When he was in business he met his finance director every Friday afternoon to talk about some, but not all, the creditors. As he put it: 'Sometimes in life it's better not to know too much.'

He placed his creditors in three categories: those who had sent solicitors' letters; those who had issued writs; and those whose writs were 14 days' old. Heseltine's advice? Always pay off the third category.

An axiom which may well usefully inform the Department of Trade and Industry's current investigation into ways of dealing with the problem of late payments in business . . .

Meanwhile, another ex-chancellor, Lord Callaghan, also had a few tips for Clarke when he presented him with his debating award. Callaghan, who resigned after devaluing sterling in 1967, recounted that shortly after he moved into the Treasury his attention was drawn to a short letter in The Times. It noted that since the war Britain had had two types of chancellor. Those who left in disgrace and those who got out in time.

However, the best line from the 81-year-old Lord Callaghan, was his tale of a mix-up at a G7 meeting he organised in Downing Street. A bemused American was perplexed by a wallmap full of red pins which he had found in his temporary quarters at Number 10. 'We know the pins are not our nuclear bases in Britain and as far as we know they are not yours,' said the Yank. Simple, explained Callaghan, they represent the bishoprics of the Church of England.

Kenneth Clarke is but a few days away from his big test, his first Budget as chancellor. Within that is contained yet another struggle: dare he risk the wrath of Britain's newspaper barons by imposing value added tax on papers and magazines?

Of course, no threats are openly heard. But Observer understands that the chancellor has been receiving plenty of unsolicited advice. Viscount Rothermere, whose Daily Mail is one of the government's staunchest supporters, has had a two-hour private meeting with Clarke's boss; he can be trusted to have put a persuasive case.

Meanwhile, The Spectator magazine, part of Conrad Black's empire, has tried to get into Clarke's good books by letting him win one of its annual parliamentary Oscars yesterday, its debater of the year prize.

However, if Clarke has read the memoirs of Lord Lawson, a former chancellor, he will know that one of Lawson's biggest regrets was letting himself be talked out of imposing VAT on newspapers in his 1984 Budget by Mrs Thatcher. 'Look Nigel,' she told Lawson, 'this is a wonderful Budget and you should get a wonderful reception. You don't want to spoil that by putting VAT on newspapers.' Lawson's advice is simple. A new chancellor has only one real chance of slapping VAT on newspapers - in his first Budget.

The proposed changes to Independent Television ownership rules are a cause for neither joy nor anguish. While a flurry of takeovers between the regional groups should not harm viewers' interests, the timid liberalisation announced yesterday will do little to enhance the competitiveness of UK broadcasting.

The absurdity of stopping large ITV companies acquiring each other has been rammed home by the fact that hostile bids will be allowed from elsewhere in the European Union from next year. Viewers will be protected because regional programming commitments are enshrined in the ITV franchises. Concerns that mergers could reduce competition are best dealt with by the standard competition authorities.

Nevertheless, the arguments used to justify the new takeover regime give cause for concern. On the one hand, ministers decided to go for modest rather than total deregulation out of fear that the system could be put under 'unnecessary strain'. The danger with such talk is that the ITV companies may think it OK to huddle together in defensive mergers. This would merely perpetuate the weakness of groups which have grown up in a monopolistic culture. The sooner the ITV companies realise they are operating in the world of business, where strain and challenge are the daily reality, the better.

On the other hand, the reason for allowing any mergers at all is a belief that ITV companies are too small to be effective on the international scene. The equation of size with effectiveness in world markets is suspect.

A sleepy erstwhile monopoly double its previous size will not necessarily be any better at winning business overseas. The more likely consequence is that it will waste shareholders' funds on foreign escapades, as has been the case with some privatised utilities.

The future of UK broadcasting needs to be understood in a wider context. Though the industry wishes to cling to its monopoly past, events are fast moving out of its grasp. Changes in technology mean that broadcasting is not governed by the need to share a limited supply of frequencies between ITV companies and the BBC. Rivalry from satellite and cable TV is growing rapidly. In future, digital broadcasting and the ability to pump TV pictures down telephone lines will provide further sources of competition. There is also a powerful, if rather unfocused, trend to integrate different media - the so-called multi-media revolution.

At present, the UK media sector is hampered by a criss-cross of regulations, of which the restriction on ITV takeovers is just one. It is moderately encouraging that ministers yesterday promised to examine the rules preventing newspaper groups owning ITV companies. But if Britain's full broadcasting potential is to be unlocked, a strategic review rather than a piecemeal approach will be needed.

The passage of the North American Free Trade Agreement set the stage for successful completion of the Uruguay Round of multilateral trade negotiations. Unfortunately, events since then demonstrate how difficult it will be to finish this play. With only three weeks left before the December 15 deadline, difficult issues need to be resolved right now. Not only is this not happening, but the US is even introducing new problems at this very late stage in the negotiations.

In his statement to the Trade Negotiations Committee in Geneva last week, Mr Peter Sutherland, the Gatt's director-general, was even moderately optimistic. Eighty-three participants have made offers on market access; the principle of comprehensive 'tariffication' of non-tariff barriers has been generally accepted; 85 participants have made initial offers on services; and new revised texts on the multilateral trade organisation and dispute settlement have also been produced.

Unhappily, there remains a host of unresolved old issues, to which new ones have been added. Under market access, for example, Mr Sutherland lists agriculture, textiles and clothing, tariff harmonisation, electronics, and leather products and footwear. Proposals to eliminate tariffs on steel products also remain critical if balance is to be achieved in the market access package.

Meanwhile, the US has outraged other participants by introducing a proposal to permit discriminatory taxation of foreign providers of financial services. It is also planning to dump on these negotiations at this late date new proposals aimed at making the scandalously protectionist anti-dumping policy still more so. Equally disturbing is the agreement by Mr Clinton to seek a 15-year phasing out of the multi-fibre arrangement, as part of the price paid for Nafta. No wonder an exasperated Mr Sutherland stated that 'now is the time for heads of delegation to put solutions rather than problems on the table'.

Those solutions have to come from the negotiations between the US and the EC, the two chief actors. They must soon reach the agreements that will provide the basis for the final global package. Unfortunately, this week's discussions between Mickey Kantor, the US trade representative, and Sir Leon Brittan, the EC's chief negotiator, seem to have done more to clarify their disagreements than resolve them.

Next week's discussions in Brussels must achieve far more. To mollify the French, for example, the two sides will need to agree an 'interpretation' of the Blair House accord on farm trade as effective as the 'clarification' of the Danish position under the Maastricht treaty. Similarly, they will have to agree the outlines of a comprehensive market access agreement. Next week's meeting offers almost their last chance. They are obliged to succeed. They have no acceptable alternative.

Sir, Your leader article 'Whitehall Farce' (November 6) falls well short of the FT's usual rigorously analytical approach. The reasons why civil service numbers have risen are not hard to find - higher unemployment needs more civil servants to administer benefit; the unprecedented size of the prison population does not keep itself behind bars; VAT on fuel will not collect itself, and paying it back to those who cannot afford it - some 5m people - will need thousands more civil servants to check and administer claims.

Mrs Thatcher cut 100,000 jobs from the civil service, but the taxpayer still pays for the functions which were contracted out. The real cost of that exercise are revealed now when contracts are re-negotiated at well beyond the expected increases. But now there is no civil service alternative. Contractors may complain about favour to in-house bids, but civil servants complain about the government's dogmatic preference for the private sector above value for money for the taxpayer - as, for example, with the Capita vehicle licensing plates contract which costs Pounds 2m in the in-house bid. Mr Waldegrave's explanation for this was that even where the taxpayer could get work done more cheaply in the public sector 'it might be better done in the private sector'. Without explanation, this remark seems to contradict the claim that decisions are based on cost efficiency, and seems to have its roots more in the philosophical prejudices of the 1970s than the 1990s.

The simple solution to this endless process of claim and counter-claim is to involve the National Audit Office in assessing bids received not only as regards costs, but also on value for money for quality of services provided.

As to the old chestnut of open advertisement for top civil service jobs, we shall all be wiser when the Cabinet Office finally publishes the efficiency unit report. But open competition in itself will not provide for a less 'secretive' system. Some recent appointments have demonstrated that government ministers take decisions on appointments on the basis of undisclosed criteria, and sometimes in opposition to the interview panel's recommendation. Taxpayers end up footing the bill for enormously inflated private sector salaries. The crux of the issue is that system must be based on fair and open competition safeguarded by public scrutiny; it is therefore unlikely to bear much comparison with the private sector.

The real issue about appointments at these levels is the threat of the politicisation of these jobs. It goes to the heart of the maintainence of a politically neutral civil service.

Elizabeth Symons,

general secretary,

The Association of First

Division Civil Servants,

2 Caxton Street,

London SW1H 0QH

As Queens Moat Houses shareholders gather on Monday for the annual meeting to discuss the parlous state of their company's affairs, they might reflect on previous corporate horror stories that held clues for their own predicament.

If they had cared to look, recent corporate history offers parallels. QMH joins names such as Tiphook, also in talks with its bankers; Brent Walker, Control Securities, Saatchi & Saatchi and WPP - which have gone to the brink and been rescued; and Polly Peck, Maxwell Communication Corporation, Coloroll and British & Commonwealth - all of which have gone into receivership or administration in the 1990s.

All these companies were, or are, run by an entrepreneurial boss, often 1980s stock market 'darlings'. They have been highly acquisitive, needing repeated injections of cash from shareholders and banks. In the late 1980s they usually demonstrated a better than average profit record, but found themselves caught on a profit treadmill, constantly having to improve results through fear of disappointing shareholders and bankers. The treadmill became more exacting as recession bit. And many have over-borrowed to invest in assets which have since fallen sharply in value.

QMH shareholders could have learned a lesson from the others. Judging by the fall in QMH's shares in the year to March, when they were suspended, some investors did indeed heed the warning signs:

The entrepreneurial boss

The 1980s economic expansion was a time when entrepreneurial zeal was easy to convert into results that convinced bankers and financial markets. But too frequently the performance could not be sustained when recession began.

One corporate financier with experience of restructurings says, of those who came unstuck: 'They were able to demonstrate a record and the accounts appeared to show asset and earnings growth.'

A director at a UK clearing bank, says: 'They all traded by reputation rather than substance. There's the avuncular type, and the bullying type, but they all relied on being powerful and were often secretive about the business.' A common theme, as in QMH and Brent Walker, was a lack of proper management accounts.

The entrepreneurial boss had often built the business from scratch. Mr John Bairstow, former chairman at QMH opened his first hotel in his house, a partly mock-tudor residence in Essex. Mr Robert Montague, chairman of Tiphook, and Mr George Walker, ex-chairman of Brent Walker, also founded their business empires.

Typically they have a great belief in their own abilities, bolstered by City adulation. 'If you are told you have the Midas touch, you believe it,' the banker explains. Many appear to regard the company as their own private fiefdom. They are prepared 'to bet the business' - regarded by many financiers as a sign of bad management; they take excessive risks - such as hanging on to assets in the hope that values will rise. If things go wrong, they blame bad luck.

'Good managers implement strategies appropriate to circumstances. In recession they rationalise, retrench, consolidate. Good management is about exercising options in a timely way and keeping exit routes open,' says one lender.

It is rare to find in one person the combination of skills to manage a business in both expansionary and recessionary phases. But, he says, it is difficult for others to tell a company founder: 'Now we're in recession we need different people.'

It is not surprising that rule one in the banker's manual, says a corporate rescuer, is to get rid of the boss.

The acquisitive company

Doing deals is the entrepreneur's great love. But were companies that have since failed building on sand? A corporate financier says: 'They were built on doing transactions where there is no room for error. You must assume continued economic growth because they can't take any downside.'

Deal making for its own sake can prove a recipe for disaster. 'The problem with acquisitions is that synergies are not achieved,' says one banker whose fingers have been burnt. 'You just get a bigger entity with bigger profits. Just because you can ride a bike it doesn't mean you can fly a jumbo jet.'

An example of a 'deal too far' is Brent Walker's Pounds 685m purchase of Grand Metropolitan's betting shops in 1989. The high price paid and debt incurred proved to be the final straw for an already over-stretched company as the economy moved into recession. With hindsight the company might have acted differently - but critics say the signs were there at the time.

The profit treadmill

A succession of profit figures that seem to defy gravity is not all good news. In the 1980s, the entrepreneur could often point to a phenomenal profit record to justify more deals, borrowings and share issues. But in recession, even keeping profits on a rising trend is difficult. And once on the treadmill, the City can be unforgiving of companies that fall off.

'The boss would promise the City 20 per cent a year earnings per share growth, and then tell the finance director to find it,' says one corporate financier.

Rising asset values help since costs can be capitalised - taking them out of the profit and loss account and including them in the balance sheet value. 'Say you buy a property for Pounds 100m and then revalue it at Pounds 150m. That gives you scope to capitalise Pounds 50m of costs against it - like a helicopter,' the financier suggests.

Another way of making use of rising asset values is to pass assets between subsidiaries, crystallising gains and taking them into profits.

Other methods are to 'front-end' profits, taking profits which directors expect but which have not yet been made. QMH, for instance, used its incentive schemes, where hotel managers promised to meet certain financial targets over the next year but could keep any excess. QMH simply included the amounts promised in profits on day one.

The late Mr Robert Maxwell was notorious for padding out his profits with, for instance, foreign exchange gains and profits on disposals.

Unsecured lending

During the 1980s banks were keen to lend in a drive for market share. The corporate financier says banks were lending against assets without taking security over them: 'The most junior analyst could see there was no cashflow.' Without cashflow to pay the interest and with asset values slumping in recession, the loans could not be serviced or repaid.

'I've been through two recessions. After the first I thought, 'we've learnt our lesson, we won't do it again' but we did,' says a clearing banker.

He is cynical about the future, believing that banks will again succumb to competitive pressures when the economy next starts to expand rapidly. 'The mood of the moment will dominate,' he says. Another quotes the banker's maxim: 'Lending money is easy. It's getting it back that's the problem.'

At QMH, the banks, which are together owed Pounds 1.2bn, are discussing a financial restructuring of the company which should save at least part of their money. The shareholders, who rank last in the list of creditors, could be forgiven for asking how they were supposed to know the depths of QMH's troubles. The answer is that they might not have been able to judge the full extent of its difficulties; but there were enough warning bells ringing.

Sir, British banks are changing the system by which they process and clear cheques ('Banks set to process cheques for each other', November 15). Surely they should be taking steps to reduce drastically the volume of cheques handled.

This has been effectively accomplished in Switzerland. Every bill that I receive is accompanied by a standard payment transfer form. At the end of each month I group together all forms for payments due and sign a single debit authorisation. I mail all of these to my bank (in an addressed envelope which my bank provides for me) and within five working days I receive from my bank an itemised list of the payments which have been made on my behalf and confirmation that my account has been debited.

I have a cheque book but seldom, if ever, use it. T J Walsh,

La Estancia,

17 Chemin du Derochoz,

1801 Le Mont-Pelerin,

Switzerland

The Red Queen: Sex and the Evolution of Human Nature

By Matt Ridley

Viking Pounds 17.99, 404 pages

Sex is not only one of the wonders of life but also one of the two great mysteries of evolutionary biology. The other is human intelligence. This remarkable book draws together many of the latest strands of scientific thinking, to create a coherent explanation both for sexual reproduction and for the extraordinary explosion in human brainpower over the past million years.

The first big question is why animals have been put to the trouble of creating separate males and females to reproduce sexually, when asexual reproduction requires much less time and effort. The answer produced 60 years ago - that sex helps a species adapt to changing circumstances by sharing out genetic innovations - is unacceptable to the 'selfish gene' school that dominates biology today.

Contemporary biologists believe the individual and its genes always come first; evolution never operates directly for the benefit of the species. Asexual individuals producing self-fertilised eggs should be able to swamp sexual rivals, who can reproduce only at half their rate, before the long-term advantages of sex make themselves felt.

The surprising answer, according to Ridley, is that sexual reproduction evolved to beat disease. The mixing of genes through sex gives the offspring a much better chance of withstanding the host of viruses, bacteria and other parasites that plagued their parents. Asexual rivals, on the other hand, are stuck with essentially the same disease-fighting genes as the previous generation.

Ridley describes new evidence to show that sex is worthwhile because it gives your children an immediate advantage in the fight against disease. Some comes from the molecular biology of germs and genes, some from computer modelling and some from experiments and observations of real animals. The Mexican minnow, for example, can reproduce with or without sex. If there is fungal disease in the pond, the sexual strains dominate; if not, they lose out to their asexual rivals.

The Red Queen goes on to show how, once separate males and females existed, genetic competition led to the growth of sexual adornments whose principal purpose is to attract the best possible mate. One example is the peacock's tail. Another is the human mind.

Ridley picks up the recent work of biologists such as Geoffrey Miller of the University of Sussex in suggesting that the best explanation for human intelligence is as a sexual adornment. They reject the traditional view that brainpower started increasing rapidly among our ancestors because intelligence was so useful for making tools, using fire, hunting animals and gathering plants. Those challenges are essentially predictable, requiring some intellect but not an ever increasing amount - and they would have applied equally to other apes living on the African savannah.

The human brain, according to Miller, is 'largely a courtship device to attract and retain sexual mates: its specific evolutionary function is to stimulate and entertain other people, and to assess the stimulation attempts of others'.

Brain size would originally have started to increase through chance mutations in the genes controlling sexual selection. These would have spread rapidly through the pre-human population, in what Ridley calls an 'arms race between the sexes'.

This is the Red Queen effect, named after the character whom Alice meets in Through the Looking Glass. However fast she runs, the world keeps pace with her and she never gets anywhere. However intelligent we are, more intelligence is always better for understanding, manipulating and seducing other people with similar brain size.

As Ridley admits, the sexual evolution of the human mind is much the most speculative theory discussed in his book. But it is as plausible as any alternative explanation for human intelligence, and it accords with examples of the Red Queen in action elsewhere in the animal kingdom, which have been subjected to various experimental tests.

Many mammals and birds have developed elaborate colours, ornaments, displays and songs, to persuade members of the opposite sex to mate with them. These special attractions do not necessarily help individuals survive in the natural environment - indeed they may hinder survival by wasting precious energy or attracting the attention of predators - but no one dare opt out of this race between the sexes.

The sexual pressure is greatest in polygamous species such as the peacock. If all peahens go for males with the showiest tails, then a less discriminating female who picks a relatively plain mate is likely to have plain-looking sons. They will fail to attract other peahens and so her genes will die out.

Ridley, a British science journalist and former zoology researcher, gives only sparing personal information about his biologist heroes. Never mind - the ideas in The Red Queen are so interesting that the excessive personal detail found in American popular science writing would have been an irritating distraction.

Illustrations, however, are a serious omission. Like many other science books, The Red Queen suffers because the author and publisher have made no effort to produce the graphics which could have illuminated the theories. For example, computer models showing sexual and asexual animals competing under different conditions would have been worth a thousand even of Ridley's lucid words. In their absence, there are a few pleasantly genteel engravings that might have graced a Victorian volume. Indeed, for a book about human sexuality, it is curiously chaste in every way.

The Red Queen may link sex and intelligence on an intellectual plane but in practice it leaves both as mysterious as ever.

Sir, Samuel Brittan's article, 'An Enigma Behind the UK Recovery' (November 22), asks the difficult question: exactly how much spare capacity is there in the UK economy? The paradox in the Confederation of British Industry survey of the decline of excess capacity combined with the anaemic gross domestic product expansion is, however, not so difficult to resolve.

First, the CBI survey is dominated by companies engaged in manufacturing whereas a much greater share of the recession in the 1990s has been taken by the service sector. I would guess that retailers, bankers, building societies and the media could all comfortably cope with an increase in output of 10 per cent from current levels.

Second, excess capacity, particularly in manufacturing, does nor stand idle forever. The conventional analysis of the output gap which extrapolates the trend in GDP and subtracts this from actual GDP is based on the premise that the capital stock is held largely intact during the cycle, unable to change swiftly in response to the fluctuations in aggregate demand. In a recession as long and deep as that at the beginning of the 1980s and 1990s, some spare capacity will be scrapped. This will reduce but not eliminate the gap. A similar argument applies to labour. The unemployed become progressively less employable the longer they are idle.

The precise size of the output gap is not particularly relevant. It is clear that there is a gap which is unlikely to be reversed for the next two years at least if, as we at Morgan Grenfell expect, UK growth is held below 3 per cent. Massive increases in taxation and/or reductions in public expenditure are required to close a yawning budget deficit. This, combined with the overhang of debt from the 1980s, will prevent demand from becoming too firm. Further gradual monetary easing in the form of lower sterling and/or base rates is justified.

Steven Bell,

chief economist,

Morgan Grenfell & Co,

23 Great Winchester Street,

London EC2P 2AX

Sir, It is amazing what you can do with statistics. Three years ago I presented the head master's special prize at St John's College School, Cambridge, to a boy who, according to the senior school for which he was aiming, had scored high marks in his Latin common entrance papers. He had not taken Latin at all.

The latest league tables from the Department for Education give the impression - and impressions can be as important as facts - that only 85 per cent of Rugby's GCSE candidates gained five or more A-C grades ('Independents remain at top in A-levels and GCSEs', November 17). Your article refers rather disparagingly to the GCSE performance (my italics) at Repton, Rugby and Haileybury, thus reinforcing the misleading statistics.

The cohort decided on by the DFE for these statistics in fact included, among other anomalies (young sixth formers), 15 pupils who were not taking their main group of GCSEs. Although we went through all of this shemozzle last year I am sad that some newspapers continue to present such misleading figures without sufficient explanation. In this age group, 94 of the 95 candidates at Rugby who took five or more subjects gained grades A-C; this represents a figure of 98.9 per cent.

The best solution for next year - league tables are certainly here to stay - is surely for the DFE to present statistics by year group rather than age, or (if it sticks to the age group) to show the results of those who have actually taken five or more subjects. If the DFE does not do this a very special head master's prize will have to be invented for it.

Michael Mavor,

head master,

Rugby School,

Warwickshire CV22 5EH

On Tuesday Sviatoslav Richter played Bach in the Barbican, with Christoph Eschenbach and the English Chamber Orchestra. It was only a pendant to his solo recital in the Festival Hall on Sunday, but a costly one: Pounds 40 for any seat in the stalls or the mid-front circle.

First, Eschenbach conducted a reasonably trim, moderately lively account of Bach's Suite in D. Then, after the interval, Richter stalked on to play the D major and G minor 'piano' concerti, the composer's own re-writes of his unimprovable violin concerti in E and in A minor. (The keys had to be lowered because the harpsichords of his day did not reach as far as the violin's top E). Finally the conductor-pianist joined Richter for the C minor, two-keyboard version of a concerto Bach probably wrote for violin and oboe.

There were no disturbing signs of over-rehearsal, neither in the Suite nor in the concerted pieces. Anyway, in the concerti Richter's and Eschenbach's big Yamaha grands often rendered the ECO strings all but inaudible - they might have been playing almost anything.

Though there are serious arguments for using the modern solo instrument that Bach never knew, the musical imbalance here was discomfiting. Not least because the ECO's continuo players had from the start included a harpsichord, the very instrument for which Bach intended his concerto solos: we could not help but notice how much happier the balance was between him and his string colleagues than between them and the soloist.

Watching a brooding, tight-jawed Richter performance (he is 78 this year) is always rather awe-inspiring. Presumably that justified the seat-prices, for there was nothing greatly remarkable in his Bach interpretations. Eschewing the expressive nuances available on the modern piano, he played everything robustly, firmly and cleanly, without any special virtuosity in his solo breaks. It seemed an exercise in heroically selfless restraint; and in the two-keyboard concerto, Eschenbach matched him.

We might have been hearing domestic play-throughs - except in the 'Adagio e piano sempre' of the solo concerto in D, where Richter drew out the lyrical line to an elevated height. That was the redeeming passage of an otherwise low-profile concert. I got home in time to watch a beady-eyed BBC-1 programme about overpaid, underskilled conductors, such as record companies nowadays promote far beyond their half-formed merits. It was the most intelligent and usefully mischievous TV study of the real-life classical music business that I have seen, and we watched it free; it was at least twice as interesting as the laid-back, low-cost but pricey Richter exhibition.

For the second time in a fortnight the Royal Festival Hall has sold out for a solo singer. At least it seems unlikely that the capacity audience on Tuesday had turned up to hear Schubert's Fifth Symphony and Respighi's The Pines of Rome, the remainder of the Philharmonia's programme.

The star was Cecilia Bartoli - still a recent arrival in the operatic firmament, but her position there is undisputed. Her diary for this year and next reads like an inventory of the world's top musical venues, though the Royal Opera House is sadly not among them. As yet, the young Italian mezzo has not appeared in opera in Britain, which makes her celebrity the more remarkable. Such is the power of television and records.

This was the first time that I had heard her live, as on the previous occasions she had cancelled. (Perhaps nobody told her I was coming.) Heard in the flesh, the voice may not be large, but it is firm and agile, now radiant, now impish, now witty, now defiant, a darting butterfly of a voice, always on the point of metamorphosis to some new persona.

In Mozart's Exsultate, jubilate it was striking how Italian through and through her singing is. This piece has become a favourite with light sopranos who show off their scales in the outer portions and waft disinterestedly through the slow central section. Bartoli's starting point is the words (an exciting thrust on 'jublilate') and the changing emotions were vividly dramatised. With an Italian upbringing music is always theatre.

Among Italian composers Rossini is her natural choice and she sang three arias from his operas. Pamira's Prayer from Le Siege de Corinthe started with the most affecting pure tone, set in relief beautifully in duet with a solo harp. When the main theme returned, accompanied by the full orchestra, she was only just loud enough in this hall, despite Giuseppe Sinopoli's considerate conducting.

Then came the famous arias from La Cenerentola and Il barbiere di Siviglia, each bubbling over with brilliance and personality. Bartoli sings her own decorations, which is wholly in character. Nothing this singer does is a mere echo of anybody else. With luck she will persuade opera managements to put on rare Rossini revivals for her in the future - perhaps with period orchestras, which would best match her scale.

Concert sponsored by AFG

Outside the ranks of FT readers (and perhaps even within) there is a weariness with the economy. At budget time financial journalists get very excited about the PSBR, the Crawling Peg, M7 or whatever the latest craze may be, but the public sighs and asks 'Is wine' (or beer or books) 'going to be more expensive or much more expensive?' To jolly us up and make us see the event's significance BBC2 will screen a programme each evening between now and Budget Day in which six members of the public try to decide what the chancellor could do about Britain's Pounds 50bn deficit. In The Red begins at 8.00.

The majority of viewers will opt instead for the second episode of David Attenborough's Life In The Freezer (BBC1, 8.00). He strides about the Antarctic, looking like Dr Who in dazzling foul weather kit, delivering his lines in the familiar crouched position from behind various examples of captivating wildlife. Irresistible stuff.

Judging from the opening episode last week, Goodnight Sweetheart (BBC1, 8.30) could be another hit for writers Marks and Gran.

RUBY IN PARADISE (15) Victor Nunez HARD TARGET (18) John Woo AMONGST FRIENDS (18) Rob Weiss BENEFIT OF THE DOUBT (18) Jonathan Heap IP5 (15) Jean-Jacques Beineix

Which part of America should you live in for maximum safety and comfort? In Long Island you risk falling foul of the Jewish Mafia (Amongst Friends). In Arizona (Benefit Of The Doubt) you might be stalked across baking deserts by barking Donald Sutherland (ex-convict, psychopath). And in the Deep South of Hard Target you could well get lost like Cajun drifter Jean-Claude Van Damme, harried through the Louisiana swamps by neo-Nazi manhunters.

The best place, surely, must be Florida's gulf coast as depicted in Victor Nunez' travelogue-of-the-soul Ruby In Paradise. Here the only menace is invading tourists. Seasonally they clatter through the resort gift-shop in Panama City where the heroine works (Ashley Judd), a young girl hoping to find herself after fleeing unhappy adolescence in her native Tennessee.

No better state in the US for self-discovery. Surrounded by hideous souvenirs - the figurines made from coloured shells, the dayglo T-shirts - Ruby must search deep in herself for truth and authenticity. 'I don't know what I'm doing here' she confides to her voice-over diary. But soon she is self-assured enough to find work, play and a sense of identity, and to juggle the two predators who want to get her into bed: raunchy employer's son Rick (Bentley Mitchum, grandson of Robert) and holier-than-thou environmentalist Mike (Todd Field).

Writer-director Nunez, who five years ago finger-painted a fine debut movie about the South Gal Young Un, gives us a film in two halves. Put simply, the first half is good, the second half self-destructs. For the opening hour we are enthralled by newcomer Ashley Judd's performance, with its hints of a secret life behind the slanting eyes, baby cheeks and self-defensive Southern drawl. And we purr with pleasure at the workings of the film-maker's own built-in junk detector. This goes 'bleep' not just at the rows of rubbish in the gift-shops but at the dubious shelf life of the people Ruby meets: notably Rick (male chauvinism plus mother's-boy spinelessness) and Mike (fine until he reveals a weakness for God-slot television).

Part one is kept alive by a sense of danger and by our suspicion that there are picturesquely disturbed corners in Ruby's own mind. Too much doodling in that diary, for a start. But part two starts in soon - too soon - on the process of doubt-allayment. Lost jobs are regained, treacherous boyfriends unmasked and stern employers revealed as gooey benefactors. The happy ending stomps towards us like a too-early dawn, dispersing all the interesting shadows.

Hollywood has many mad science laboratories, but the maddest of all is the one with the signplate 'Cultural Crossbreeding'. Here men with white coats and smoking brains dream up projects such as Hard Target. What would happen (they muse) if we team a Belgian footboxing star with a Hong Kong action director and set them both down in French-American Louisiana?

Jean-Claude Van Damme is our hero-hulk with the trailing curls and legs as lethal and many-angled as compasses. John Woo of The Killer and Hard Boiled is called in to produce further evidence that he is the world's most gymnastic action director. And as for the plot - anyone got a plot? Oh yes, how about the old one about racist psychopaths going manhunting in the Deep South. That will do: so long as we are insured against plagiarism suits from Betrayed and Southern Comfort.

So the insane day begins; and the dreadful glory of a movie that is both delinquent and virtuosic. Shotgun in one hand, girl in the other (Yancy Butler, searching for a Dad we saw manhunted to death in scene one), Mr Van Damme serpentines through the bayous hunting - and being hunted by - Lance Henriksen's sneering villain and his pay-by-the-hour client army. Snakes; petrol bombs; exploding cars; grenades down the trousers; and Mr VD coming through it all like a mixture of Schwarzenegger and Nureyev. He dives swallow-like through the flames one moment, biffs the daylights out of the baddies the next.

I was appalled by the amount of careless laughter issuing from my area of the cinema, until I realised that much of it was coming from me. But then how does one react to a movie that resembles a Jackson Pollock painting in which the coloured smears are real people? Giggles seem as appropriate as shocked gasps. For this film has nothing to do with real life or real violence (that tends to hurt): rather it is a near-abstract riot of dering-do in which visible injury is set firmly aside for visible ingenuity.

For a truly numbskulled use of violence we must turn to Rob Weiss's Amongst Friends. Here the leisured classes of Long Island preside over a second generation of hoodlums-through-boredom. Andy, Billy and Trevor are scions of Kosher Nostra: Jewish dynasties surrounded by ill-gotten heirlooms and by only-begotten heirs who want all that and more. Do not be fooled by the yachts, the lace tablecloths and all that money spent on their education. These boys want out of Millionaire's Row and into Scorsese's mean streets.

We, somehow, are supposed to care. Weiss has a funny idea of the things that might constitute a plausible, empathy-prone source for a life of crime. (Jaded youngsters turning silver spoons into revolvers is not one.) And he has a funnier idea of character and structure. We dribble on through ten years of crime and punishment, feud and counter-feud, with no signs of ageing, no sense of psychological development, and certainly no increase in either wisdom or excitement.

But the week's Wooden Spoon for an American movie must be held back for Benefit Of The Doubt. This finds Donald Sutherland released from a 22-year jail sentence for wife-murder and going in search of daughter Amy Irving, who testified against him. 'Daddy won't forget this . . .' he had told her outside court. So soon we are thrown sizzling into the silliest plot of 1993. Murder, incest, boat chases and wild, wild Arizona scenery; plus a handful of good actors struggling to be more than plastic counters shoved around a giant high-speed board-game.

Things are little better on this side of the Atlantic. A 'successful' European film used to be one that earned festival prizes and critical plaudits and then sent out ripples of innovation and aesthetic challenge to Hollywood. Today a successful European film is one so Hollywoodish already that America buys it up for a remake: Cousins, Three Men And A Baby, Nikita . . .

Jean-Jacques Beineix's IP5 has all the schmaltzy plot gimmicks in place to bait the Tinseltown hook. Two semi-delinquent street boys on the run, one black, one white. (This should secure the cross-racial youth audience.) The wistful, dying old man they meet on the road and from whom they learn lessons in love, wisdom and the everyday-miraculous. (He is Yves Montand: add a few million older moviegoers who grew up with Z and L'Aveu.) And - for what is a high-concept film without a 'quest'? - an ensuing zigzag across France in pursuit of long-lost girlfriends (Montand), long-sought father figures (the boys) and other glib emotional pay-offs.

Beineix, who made Diva and Betty Blue, specialises in a grandiloquent glossiness that masquerades as art. He begins the movie - almost promisingly - as if it is a hip-hop musical. The black boy dances and sings along a midnight city street as his mate makes merry with the graffiti paint. The scene is so catchy, so surreal that we wish it had set the tone for the rest. 'Les Spraycans De Cherbourg' we could have taken, but not Beineix's ensuing attempt to pass off maudlin fable-spinning as Deep Thoughts about the homeless child in each of us.

As for the UK print's transatlantic subtitles - 'Chill out', 'F*** me, what a babe]' - they add to the feeling that in Gallic movies today the trademark 'Made in France' is being slowly obliterated by 'Made for Hollywood.'

Looking at London Contemporary Dance Theatre on Tuesday night at the beginning of its autumn season, I saw again what I have been seeing for 20 years: a superlative dance ensemble. When the company came into being at the end of the 1960s it was sometimes raw but always eager, always intensely committed. Across the next decade standards of physical attainment - stunning skill; whole-hearted and whole-spirited energy - were testimony to the guiding presence of Robert Cohan and the spiritual concern of Robin Howard, who had made the enterprise possible. After ten years the company was a world-beater.

Since then it has, astonishingly, improved, in matter of physical finesse, and adaptability to the demands of many choreographers. (Works by Martha Graham and Paul Taylor most honourably done; Cohan's choreographies perfectly shown; pieces by Richard Alston, Siobhan Davies, and others - all products of the organisation - given transcendent execution.)

Now, for reasons which are not as clear and straightforward as press-releases and apologists would have us believe, the troupe is to be reduced in size. Britain's flag-ship modern dance troupe is to be sent to the breakers' yard, to be replaced by a smaller ensemble under Richard Alston, as part of a 'National Centre for Contemporary Dance'.

Alston's appointment is good news. It is more curious that the Rambert Dance Company (from which Alston was summarily removed last December) is to be expanded to 25 dancers, with an orchestra, and is reportedly to become a 'neo-classic' group adapted to the work of its forthcoming director Christopher Bruce, and also supposed to be capable of playing a Balanchinian repertory. (Hmm]) The dismantling of a superlative company, the fruit of an unrivalled school, in favour of a new unproved ensemble, is policy gone mad. The Luddites are in charge.

It is even more ironic that the greatest success LCDT has on its hands (and ebullient feet) at the moment is Christopher Bruce's Rooster. First made for the Geneva Ballet, it takes as its text awful songs by the Rolling Stones, but explores them in dances of whizzing vitality which LCDT bring off in fire-cracker style. It came as a wonderful end to a programme in which the dancers rescued two less than convincing pieces. Aletta Collins' Shoes is indeed about shoes - multi-coloured, clunky, better off than on. There is a score of abrasive minimalism by Steve Martland (well played by a group under Nicholas Mojsejenko) and stylish design by Tom Cairns. The cast are in street clothes; the theme - I suppose - suggests that shoes are conformist, and that we are better off bare-foot. It is all rather flaccid, and terminally long. But when Miss Collins lets her cast dance, the steps fly, and we see how amazingly gifted the troupe is - elegant in means, formidable in prowess, absolute and loving servants of their text. They make the piece exhilarating.

Nothing, no-one, can make the other novelty, a ripe piece of Euro-trash, bearable. It is entitled Sand Skin (no explanation given, though an addled programme note talks about 'mutations necessary for the survival of a species'), and it is by the French-based Angelin Preljocaj. Fourteen dancers are hideously garbed. (Caroline Antenski has concocted what look like failed unisex underclothes in funereal black; tights that are more hole than fabric; black shoes) and behave morosely. They may be in quest of a cure for the steps, or merely exercising their psyches. They do their grand best, but look very sad indeed, and I do not blame them.

Fortunately Rooster restores them to life. This is given with glorious vitality, a throw-away bravura and a muscular sophistication - the impossible made not only easy but witty - that explains exactly why this great company (and I use the words advisedly) should not be sacrificed to policy. There have been mis-routings in recent years with LCDT - failures in artistic direction - but the troupe is a national treasure. We do not have anything comparable. There is nothing comparable in Europe. To sacrifice it on the altar of expediency and a chimeric re-organisation is criminal. Policy can be altered. To alter the company will be to deny its history - LCDT and its School made possible the whole modern dance movement in this country - its splendid present, and its potential for the future of dance in Britain.

Even with the best air safety technology in the world, human skills will remain at a premium. Powerful number-crunching computer systems will take much of the complicated routine out of navigation and air traffic control and make it easier to deal with unexpected and risky incidents, but highly trained people will still be needed to fly and control the aircraft.

Computers and sophisticated electronics cannot do everything, however much they can simplify the business of taking off, flying and landing. They cannot, for example, deal with sudden and unexplained, engine or fuselage failures which need human ability to land crippled aircraft and save lives.

Nor can they be a comforting substitute in passengers' minds for the physical presence of a crew, even if all is well.

'Airline passengers are unlikely in the foreseeable future to trust themselves to a fully automatic aircraft,' Charles Billings, a US safety expert, told a recent conference in London. 'Would you?'

Billings, from the cognitive systems engineering laboratory at Ohio State University, said thousands of people each day placed their faith in urban, rapid transit systems. However, these run under much tighter constraints than are possible in aviation.

'You cannot simply stop the airplane when something goes wrong in flight.' Also, pilots and air traffic controllers were responsible by law for flight safety. 'This responsibility cannot be abrogated, even though automated devices may remove some of the authority formerly possessed by these human operators.'

Thus he added: 'We believe that if pilots and controllers are to be held responsible for system safety, they must retain the authority necessary to command and control the system.' That is what the pilots think, too.

Broadly, pilots support the introduction of sophisticated navigation systems such as automatic dependent surveillance (ADS), says James Gaskell, vice-chairman of the air traffic services study group at the British Airline Pilots Association (Balpa).

But they are wary of too rapid a reduction of the present separation limits such as those applying over the busy North Atlantic, where more than 200 aircraft are in the air at peak times. Both Balpa and the international pilots' federation want a co-ordinated introduction in accordance with proper rules.

'It is surprising how busy the Atlantic is at times,' adds Gaskell. 'You can sit at night and see the lights of other aircraft above and below. It (ADS) does need to be treated very carefully.' Thus Balpa would like to see ADS used initially at the current separation levels, with these then gradually being decreased as the system proves its worth.

Because aircraft are already so reliable and automated, some 75 per cent of accidents have a human cause, Phil Hogge, British Airways' general manager for flight operational services, told the conference which was organised by the UK's parliamentary advisory council for transport safety.

These days, errors tend to stem from incorrect loading of navigational information into the on-board computer rather than wrong calculations, he said. 'Therefore, the subject that requires most attention is this whole area of why people make mistakes.'

Apart from the work of psychologists, government agencies and manufacturers in designing effective warning systems and controls, BA also relies on its own intensive analysis of incidents - including use of its computerised Basis (BA safety information system) database - and the human factors involved. The airline uses this information to help training and improve procedures.

Much of the automation that pilots and controllers have become used to, said Billings, 'is too often brittle instead of resilient, clumsy instead of facile and, above all, complex instead of simple.'

But the new systems, he noted, were now starting to provide more help and information where it was most needed - such as after engine failures by compensating for uneven power thrust - and not just during routine flight.

'The means for at least semi-automatic air traffic control, as well as flight, are at hand.'

But Billings added: 'It is the human operators, not the computers, that remain responsible for safety.'

When you're strapped into your seat 30,000ft in the air, waiting for the hours to pass on an intercontinental flight, it might be reassuring to know that the aircraft's exact position is known to those on the ground. For much of its route, however, this is not the case, whether you are flying over land masses such as the Indian subcontinent or large tracts of water like the Atlantic and Pacific oceans. Radar stations cannot be planted all over Asia or across the seas and radio contact is limited and unreliable over vast distances.

For much of their journeys across the Atlantic, aircraft are out of contact as they fly between the radar stations on the Scottish and Canadian coasts. Pilots report their position by radio, but this can take time. Thus aircraft have to be kept far enough apart - 60 miles each side, 2,000ft vertically and 10 minutes' flying time behind each other - to ensure maximum safety.

But two things are happening which promise to change the world aviation picture: air traffic is expected to grow at around 6 per cent a year up to 2000, with aircraft movements set to double in Europe by 2010; and technology has advanced to the stage where computers and satellites can be used to pinpoint aircraft positions so accurately that separation levels could eventually be halved and more flights safely accommodated on the same routes.

Although the technology is available, this will not happen quickly. Governments, airlines and regulatory bodies have to agree on how and when it will be phased in - there is broad agreement on its desirability - and the air traffic management (ATM) systems have to be tested thoroughly. Airlines also have to decide the investment is worthwhile.

Aviation experts stress that the new satellite-based technology of automatic dependent surveillance (ADS), in which a stream of data is fed back automatically from the aircraft to the ground, is not aimed at increasing safety but at maintaining it, as more flights are allowed into the available airspace.

Flying is one of the safest forms of travel, although the spectacular nature of air disasters makes them especially frightening: the worst was a collision at Tenerife airport in the Canary Islands in 1977 which killed 582 people.

'The objective is to improve the efficiency of the airspace with no reduction in safety,' says David Featherstone, air traffic services development manager at Inmarsat, the international satellite organisation.

'Safety is not at issue,' agrees Michael Parry-Evans, ATM marketing executive at Siemens Plessey Systems, part of the Siemens electronics group. 'There would be delays rather than any imperilling of passengers if air traffic control systems proved inadequate. The aim is to put in place a very viable transport infrastructure.'

Today's infrastructure works, but is stretched and needs updating. Large areas of the world, such as India, Africa and parts of southern and eastern Europe, are poorly equipped with radar. In northern Europe, congestion can cause lengthy delays. Now, the development of high-powered computer systems, allied to the satellite network, has made it possible to plan for a new generation of equipment.

Ten years ago, the International Civil Aviation Organisation set up a committee on Future Air Navigation Systems (Fans) to look into the navigational needs of the next 20 years. It is under the auspices of Fans that ADS is being developed.

The satellites needed for ADS are in place. They cover four global regions and will - once ADS is introduced towards the end of the century - enable data to be sent digitally via satellite to a ground station and then into air traffic control centres. Those on the ground could follow an aircraft's track and direction based on the data - sometimes called 'pseudo-radar' - being sent back. 'It will make the controller's job a lot easier,' says Featherstone.

Pilots, too, should benefit. Based on the satellite data, they could be given new flight paths to avoid bad weather or save fuel by keeping away from strong winds. Engine data could also be monitored.

ADS is basically a development of the in-flight telephone systems that airlines are introducing for passengers. Since the latest generation of ground-air communications allows telephone and data services to be combined, the instalment cost per new aircraft of up to Dollars 500,000 (Pounds 340,000) for each ADS unit and cabin equipment could be paid for by call charges.

That is what British Airways and its competitors hope. 'We believe that to make satellite navigation successful and cost-effective for the airlines, we've got to bring a number of applications together,' says Gerry Selves, BA's manager for flight technical projects. This means a combination of ADS, telephones and data transmission for passengers and airline use, and facsimile machines.

The UK's Civil Aviation Authority has taken an early lead in studying the value of ADS. Using a Boeing 747-400 from BA, it carried out extensive tests on a flight from Osaka, Japan, to London's Heathrow airport. Reports were sent back from the aircraft via satellite every 10 seconds, but the CAA expects the typical reporting period for North Atlantic flights to be every five minutes.

'The CAA has taken the initiative on this programme,' says Leo Gallagher, commercial director of Racal Avionics which has co-operated with Honeywell of the US on Satcom, the leading aeronautical satellite communications system. 'It is the first aviation authority in the world to grasp the nettle of ADS.'

Other airlines such as United Airlines and Qantas are also studying ADS, in which Rockwell-Collins of the US is also a player, but all are cautious about investing at a time of economic uncertainty and stiff competition. They want to be sure of the savings ADS can bring by allowing them to fly the quickest routes and to avoid poor weather.

It is not only airlines which are under pressure to spend more money. Airport and traffic control authorities, too, are investing in high-performance systems to streamline the complex task of aircraft approaches, landings, takeoffs and manoeuvrings on the ground. 'The drive in the short- to medium-term is for increasing sophistication of air traffic systems,' says Siemens' Parry-Evans.

With more powerful, integrated systems, air traffic controllers should be able to concentrate more on difficult and potentially disastrous incidents by having much of the routine taken away from them. On Siemens' latest air traffic management system, each aircraft is identified with a marker and information about its height, direction and speed is attached. The picture can be blown up, viewed on more than one screen and be overlaid with weather data. There is a built-in conflict alert to show if two aircraft are dangerously close.

In competition with companies such as IBM, Raytheon and Hughes of the US, Thomson of France and Alenia of Italy, Siemens is keen to move deeper into the ATM market, worth more than Dollars 2bn a year.

The European part of that is valued at some Dollars 500m. As efforts by Eurocontrol (the European agency for air navigation safety) to harmonise and upgrade different national ATM systems - many of them dating from the 1960s - bear fruit, investment will be substantial. Among the new technologies being introduced are systems which use microwaves for quicker and safer landings.

The series continues next week with a look at vehicle safety.

Shaun Bowden, right, has been appointed chief executive at Leigh Interests, the waste management group, moving on from AH Marks, a private company specialising in crop protection products and organic chemicals.

Bowden, 46, had been chosen by Malcolm Wood, chairman and chief executive, who intended splitting the roles following the growth of Leigh Interests. Wood, however, barely had time to usher Bowden into the company before dying from a heart attack, aged 62, on October 29.

Paddy Custis, non-executive deputy chairman of Leigh Interests since 1982, is taking over as non-executive chairman. Custis says that since Bowden had the imprimatur of Wood the company has every confidence that the transition will be smooth; Bowden is starting work at Leigh on December 13.

Bowden is a director of the British Agrochemicals Association and was formerly a director of the Bradford & district training and enterprise council.

He has an MBA from Manchester Business School.

Gary Jennison, appointed sales and marketing director and to the board of HITACHI CREDIT (UK).

Robert Kretowicz, appointed md of corporate finance department of CHARTERHOUSE, moving from Chemical Bank.

Smith New Court's Mike Unsworth, 44, who claims to be the longest-serving head of research of a major City broker, is moving into the firm's corporate finance team and handing his research baton over to Bruce Davidson.

Davidson, 38, has been following the conglomerate sector and, like Unsworth, joined SNC at the time of Smith Brothers' merger with the much smaller broker, Scott Goff.

The reshuffle coincides with another high-level defection from one of the City's most aggressive stockbrokers.

Alistair Buchanan, SNC's number one rated electrical utility analyst, has left to join BZW along with colleagues Tim Ancher and Daniel Martin.

It is understood that Buchanan had been offered the job of joint deputy head of research at SNC along with Richard Dale.

The departure of Buchanan and his team is a blow for SNC which is corporate broker to several well known utilities.

However, the firm has had little difficulty replacing other star analysts who have been poached by rival firms and expects to fill the gap left by Buchanan's departure.

Meanwhile, Ken Taylor, currently head of sales at SNC's agency operations, has been promoted to deputy managing director of UK agency and will have overall responsibility for the business when Paul Roy, managing director UK agency, is away.

Michael Davids has been appointed deputy managing director UK agency and will be primarily responsible for closer integration between the overseas and UK agency business.

Rennie McConnochie takes over as head of UK sales and Mark Pumfrey will be deputy head.

For most mothers-to-be in the UK, the marketing campaign starts at 12 weeks, peaks shortly after delivery and then never seems to end.

On the National Health Service, women book into a hospital when they are about three months' pregnant. After blood tests and consultation with a midwife they are given a red plastic folder containing two items: a card detailing further appointments and a 'Bounty Pregnancy Guide'.

No less than a third of the pages of this glossy booklet, which declares it is written with the help and advice of members of the Royal College of Midwives, feature the sort of sickly advertisements that could only be found in a specialist publication.

Take the first few. 'No job's too big for Baby Fresh,' says the baby-wipes manufacturer; 'Come on, push, push, push, push, push,' runs the text accompanying a picture of a Mothercare buggy. 'I want to be the best mum in the whole world,' says the Prudential in its drive to sell products to make baby more financially secure in the future.

Months later, the newly-delivered mother lies in her hospital bed snatching a few moments of rest between visiting hours. A trolley laden with large sealed gift bags, pushed by one of 260 distributors from Bounty, the Diss-based publishing and services company that charges mother-and-baby companies a fee for joining its syndicated sampling service, is making the rounds.

If the woman accepts the assortment of Pampers nappies, Drapolene nappy cream, baby bath and other goodies without filling in a card saying she does not want to receive 'further free samples and product information', she goes on a list.

For Bounty is at liberty under the Data Protection Act to put her name on its database, to sell on to the large number of companies hungry to tap into the baby products market - worth Pounds 1.5bn in 1990. Paul D'Inverno, publications director of Bounty, claims his company is the only one with a nationwide spread; neither competitor he mentions, Newborn or Lifecycle Marketing, has contracts with hospitals.

Everyone is subjected to advertising from cradle to grave, not just pregnant women and new mothers. But advertisers do seem to reserve a peculiar intensity for these groups. 'Heinz carefully markets its baby food to parents to make sure they get the information they need and want,' said a Heinz spokesman.

And Bounty's business, advertising mother and baby products, is perfectly legal - though some might say that women are exhausted and distracted by the free samples at the one opportunity they are granted to avoid an avalanche of direct mail over the coming months.

Even so, many expectant or recent mothers will agree with Cathy Irons, the business manager of maternity services at St Mary's Hospital in London. She says that such women are particularly 'vulnerable to advertising from all sides'.

There are at least two reasons for this. First is the natural urge to be the perfect mother, exactly the button the Prudential pushed in its financial services advertisement. At the same time, first-time mothers have little idea which of the myriad products manufacturers insist they need buy to strive towards this perfection are useful, and which are expensive extras. In the past, for instance, objections were raised because the Bounty pack included sweet, syrupy drinks which could lead to tooth decay.

Philippa Need of the National Childbirth Trust says: 'You are made to feel everything is so essential. But a baby bath, for example, is a complete irrelevance.'

According to the Health Visitors' Association, women spent on average Pounds 1,050 in 1990 on clothes and equipment in the first year. At the same time, one in four of these had been means tested to receive the Pounds 100 state maternity grant.

Christine Gowdridge of the Maternity Alliance, which provides advice on maternity care and state benefits, says it is not uncommon for a woman to spend heavily on a new pushchair or steam steriliser to find she cannot afford the basic nappies and babyclothes. 'It's all too easy to succumb to well-targeted adverts,' she says.

BT is just one of the 100 companies that bought Bounty's list of new mothers earlier this year. I was on it. In April, Bounty sent me - on behalf of BT - a glossy leaflet promoting mobile telephones and answering machines. 'Now that you're a new mum, you can't drop everything every time the 'phone rings, can you?' it wheedled, next to a picture of a dressing-gowned woman cradling a rosy-cheeked baby. I binned it with a practised flick.

Steve Marshall, Grand Metropolitan's investor relations director since 1990, will become finance director for the European division of International Distillers & Vintners, the group's spirits company, on January 1, 1994.

Marshall, a fellow of the Chartered Institute of Management Accountants, joined GrandMet in 1989 as corporate director, financial planning and control, after holding a series of financial posts with Burton Group, Black & Decker, and BOC Group. He will report to Colin Gordon, president IDV Europe.

Catherine James, business director of GrandMet Estates, the subsidiary which manages the group's property portfolio, will take over immediately as group investor relations director.

James, an Oxford economics graduate who has worked with the Thomson Organisation and Price Waterhouse, joined GrandMet in 1984 in its brewing division.

Two years later, she moved to GrandMet Estates, where she has held several senior financial management positions, including finance director.

The events of one day last month summed up the currently mixed messages coming from UK advertising agencies about prospects for business.

Abbott Mead Vickers reported a slight drop in its pre-tax profits for the first half of the year, although chairman David Abbott said he saw signs that 'widespread cutbacks in client spending seem to be a thing of the past'. The group felt 'considerable optimism' as it looked forward to 1994, he added.

A few London streets away and on the same day, agency Gold Greenlees Trott issued a warning that profit forecasts by the City for the year ending next April were over-optimistic. This was because the recovery in both advertising and sales promotion had been slower than anticipated. The result had been the deferral and reduction of spending by a number of clients, said GGT.

The same mixed messages come from the latest annual survey by accountants Touche Ross of advertising agency profitability in 1992.*

The past year has been one of 'uncertainty, tentative optimism and ultimately disappointment,' finds the survey. At the same time, there appears to have been an encouraging halt in the long-term decline of operating margins and operating profits are beginning to increase.

The firm's latest annual survey is based on the results of the top 50 agency groups by billings. The combined pre-tax profits of the groups were wiped out by Saatchi and Saatchi's Pounds 600m write-off of goodwill, following the group's decision to acknowledge there had been a 'permanent diminution' in the value of goodwill on earlier acquisitions. Ignoring Saatchi's write-off, average profits fell 2 per cent on the previous year.

For the first time, the survey includes some international comparisons for the largest quoted groups. By most measures, the US-controlled groups outperform their European competitors. For example, operating profit margins of UK-based quoted companies averaged 6.7 per cent last year, compared with a 13.8 per cent average for the US companies.

The UK average, dominated as it is by the poor margins of Saatchi and Saatchi and WPP, masks the sound performances of Abbott Mead Vickers (15.5 per cent) and Gold Greenlees Trott (12.4 per cent), points out Touche Ross.

An analysis of sources of profit from the published accounts of the largest quoted UK groups also shows that it has been more difficult in the past year to make profits in the home market than abroad.

While there was no real growth in the UK in 1992, markets in Germany, Austria, Portugal, Belgium and Greece grew by between 8 per cent and 40 per cent.

Profits from US operations outshone those for the rest of the world.

Redundancy and reorganisation have again been a feature of the year, finds the survey.

The top 50 agency groups have reduced the number of staff they employ by 5 per cent over the 12 months. An examination of those agencies which have retrenched shows that, overall, 'biting the bullet can and does work. It is not, as many think, the beginning of a downward spiral', finds the study.

While the recession may have been the catalyst that has created the crisis for agencies, in many areas of activity it has merely focused attention on problems that have existed for some time.

Concludes Touche Ross: 'The indications are that agencies have begun at last to tackle many of these problems. The many job losses and massive rationalisation costs testify that this has not been without pain.'

*Tenth annual advertising agency profitability survey, edited by David Miles. Touche Ross, marketing services group, Hill House, 1 Little New Street, London EC4A 3TR. Pounds 150

Plasterboard manufacturer BPB Industries, which parted company with its chief executive John Maxwell in September, has now promoted Jean-Pierre Cuny to the position of group deputy chief executive, as well as chairman of the gypsum division. He is expected to become group chief executive in due course.

In considerable contrast to Maxwell, who had no experience in the industry before joining the company in the spring of 1992, 53-year-old Cuny, who is a French citizen, has been with the group since 1977.

Cuny joined the main board in 1988 and has most recently been deputy chairman of the gypsum division, running gypsum interests in continental Europe, from his Paris base.

An engineering graduate of the Ecole Centrale de Paris and metallurgy post-graduate from MIT, Cuny now moves to London.

There his immediate task is to sort out the gypsum division as a whole and organise the succession, according to Alan Turner, BPB's chairman and chief executive.

'His promotion to deputy chief executive is intended to signal his stepwise progression. When he has got gypsum sorted out, he can raise his head and become chief executive,' says Turner.

Turner declined to comment as to why Cuny was not deemed a suitable candidate for the chief executive seat before Maxwell was appointed.

Keith Worrall, Sainsbury's director of grocery and non-foods buying, is to retire next July after 40 years of service with the company, during which it has grown from a chain of high street grocers to the UK's biggest superstore group.

He will be replaced by Robin Whitbread, currently marketing director, while Whitbread's place will be filled by Ivor Hunt, departmental director responsible for marketing services.

Worrall, 56, joined Sainsbury's statistical department in 1953 and held various positions in the trading departments before becoming departmental director for dairy and frozen food buying in 1986. He took over his present position in 1986.

Sainsbury's said there would be a phased handover before next July from Worrall to Whitbread.

Whitbread joined Sainsbury's in 1969 and rose to become departmental director responsible for marketing in 1983.

Four years later he was appointed to the board of Shaw's Supermarkets, Sainsbury's US supermarket chain. He was appointed to Sainsbury's board as marketing director in 1990.

Ivor Hunt, who will join Sainsbury's board next March, worked for Hawker Siddeley Aviation, and as statistical manager for AGB research, before joining Sainsbury's in 1971 as head of statistical services. He became departmental director for marketing services in 1987.

Four years after its launch, canned Draught Guinness is firmly established as the most successful new product introduced in the UK beer industry for more than a decade.

More than 250m cans - fitted with the widget that gives the stout a taste and appearance close to that of a bar-room pint - have been sold since 1989. This month, Sweden became the 51st country to import the product. It is a bestseller in markets from the US to Hong Kong.

In the UK, Guinness's innovation has not only been good for the company, it has revolutionised the take-home beer market.

The difficulty of replicating the characteristics of draught ale and stout in bottles or cans helped lager achieve even greater dominance of the take-home sector - where it accounts for nearly two-thirds of volume - than of pub beer sales.

The Guinness in-can system, which won a Queen's Award for Technology in 1991, has changed that. Work on the project began in the mid-1980s when the company revived the image of its draught stout to make it more appealing to younger pub-goers.

'We thought how wonderful it would be if we could also make it more appealing to take-home drinkers,' says Brendan O'Neill, managing director of Guinness Brewing Worldwide. 'Being a brewer which does not own pubs is a great incentive to innovation.'

More than 100 methods were tested. The researchers even tried pouring the beer through nylon stockings and from a can with a spout lined with sandpaper. Five years and Pounds 5m later, they found the answer: a plastic chamber, with a minute hole, fixed at the bottom of the can.

During filling, some beer is forced into the chamber under pressure. When the can is opened the beer surges out, creating the bubbles that form the creamy head.

Guinness discovered that the system worked equally well in a can of ale - and promptly launched its own brand of canned draught bitter.

Other national brewers rushed to develop their versions of the Guinness widget. Whitbread, having failed to persuade Guinness to license its system, developed its own system for canned Boddington's bitter and Murphy's Irish Stout. It has recently been extended to Flowers and Castle Eden ales and to Marston's Pedigree bitter. Courage has launched its variation on the theme in canned draught John Smith's bitter, backing it with a Pounds 6m campaign. Carlsberg-Tetley has now launched canned Tetley bitter in the north of England.

The new canned beers - priced at least 20 per cent above the original packaged products - have given a further fillip to the take-home trade, already growing fast as drinking habits change under such influences as the drink-driving laws, ageing population and increasing home entertainment facilities.

Whitbread estimates the new draught-in-can stout and ale brands now account for 14 per cent per cent of take-home beer sales by volume and 22 per cent by value. Their share of the sector is expected to double by 1966.

Guinness has demonstrated its confidence in the growth of the market for its stout by investing Pounds 30m in canning lines at Dundalk, Ireland and Runcorn, near Liverpool, where the facilities will be capable of producing 2m cans daily.

The third annual meeting earlier this month of standards setters from around the world highlighted some important lessons in the changing attitudes of international accounting across borders.

Representatives from 16 developed countries as well as the International Accounting Standards Committee (IASC), the EU and the European Accounting Federation (FEE) gathered in London following previous meetings in Brussels and New Jersey.

Harmonisation of standards was not formally on the agenda, but one underlying purpose was to curb further diversity in financial reporting. David Tweedie, chairman of the UK's Accounting Standards Board (ASB) and the conference host, suggested that the IASC conceptual framework would provide a useful basis for analysing accounting issues.

However, he implied that some countries were seeking 'ideal standards' and greater convergence in reporting might emerge by these countries taking the lead and influencing others.

This reflects Tweedie's belief that good accounting will be achieved by clear-thinking pioneers of new practices. It represents a challenge to the IASC, which has traditionally been represented by senior members in professional bodies and has been tied by the need for consensus.

The discussion and presentations, which took place over two days in London, displayed just how wide are the differences in the objectives of financial reporting around the world. While the function of accounting is perceived as serving different needs in different social and economic environments, agreement on individual issues is hard to secure and harmonisation remains an uncertain goal.

Nevertheless, the atmosphere is changing. Compared even with last year's gathering, sponsored by the US Financial Accounting Standards Board (FASB), the mood was subtly different. Only the delegates from FASB itself seemed entirely at ease with the debate format, but most participants were more relaxed and showed a surprising willingness to drop their defences and discuss issues on a conceptual basis, sometimes in sharp contrast to the principles adopted in their own jurisdictions.

The agenda contributed to the emphasis on concepts. Most of the first day was taken up considering a number of simple case studies appended to a substantial paper on Accounting for Future Events. Introducing the paper, Jim Leisenring, FASB deputy chairman, said that his organisation, and the standards setters in Australia, Canada, Britain and the IASC all shared very similar conceptual frameworks but none the less entered into 'some heated debates' over the issues involved.

One case study was of a retail store which paid out Dollars 30,000 on a single injury claim from a customer in three years and had decided, on the basis of past experience, to charge Dollars 10,000 each year as a 'self-insurance' expense, recognising that a corresponding liability would grow while no claims arose.

Participants were asked to consider whether this store should recognise this 'self-insurance' liability in its accounts. Seven argued that it was a general business risk and should be accounted for only as and when the expense arose. Five were adamant that there was a liability and it should be recognised.

Geoffrey Whittington, academic adviser to the ASB, said accounts were supposed to state the position at a point in time and the liability should be recognised only when a risk had occurred. Herman Marseille from the Netherlands, and Karel van Hulle, head of accounting at the European Commission, agreed, adding that there would be a liability only if there were a legal duty to insure.

Atle Johnsen from Norway and Heinz Kleempker from Germany argued that the risk could be assessed and quantified by insurers, whether or not the store paid for insurance - so it was a liability and should be recognised. Interestingly, Dietz Mertin from the German Institute of Accountants disagreed with his countryman and argued that the compensation payments were a general business risk for which there should therefore be no recognition.

Such disagreements are more common in the US. On the second day, Jim Leisenring told delegates that FASB wants to revise the rules for consolidated accounts, but cannot get agreement on a new definition of a subsidiary. Its board cannot reach the necessary 5-2 majority on any definition that goes beyond the traditional ownership of 50 per cent plus one of the voting shares.

A session on accounting for goodwill on acquisitions proved contentious: international practice varies widely and, as Leisenring said at the end of the debate: 'I don't think it fits in with any of our conceptual thinking. We ought to work harder at it than we already have.'

A position paper was presented by Dominique Ledouble of the Conseil National de la Comptabilite who said there was pressure in France for flexible rules on intangibles, to match those of the UK. Three years ago France had moved to allow goodwill to be carried, but amortised. However, 'numerous kinds of new intangibles' - such as brands, patents, lists etc - were emerging and these were more and more difficult to measure and, in most cases, were not depreciated materially.

Allan Cook, ASB technical director, emphasised the importance of the issue in the UK. In the early 1980s the proportion of goodwill in the accounts of acquiring companies amounted to 6-7 per cent. By mid-1987 this had risen to 44 per cent. Cook called for all intangibles to be treated in the same way.

Tweedie ended this debate on goodwill with a plea that the standards setters should listen to what industry was saying. The problem in the UK was with service companies, he said. They argued that the value of goodwill was rising, so why should they amortise? 'A lot of industrialists simply don't understand what we are trying to do with goodwill - 93 per cent of industry respondees said 'rubbish' to a 20-year write-off,' said Tweedie.

Meanwhile, internally generated intangibles tended not to get on to the balance sheet because such assets frequently fail reliability/recognition tests. 'So we must look at it again, from scratch,' said Tweedie.

Warren McGregor, executive director of the Australian standards setting body, gave a presentation on accounting for leases. He argued that the leasing standards that involved capitalisation of finance leases were fundamentally flawed. The correct approach was to capitalise all leases, subject only to a materiality threshold.

Van Hulle said that some European countries had difficulty in accepting that the same asset might appear in several balance sheets at the same time. There were different legal frameworks in different countries and reporting rules for financial institutions in particular made lease accounting a highly problematic issue. He added that to put economic benefits on the balance sheet as an asset was to open up a 'Pandora's box'.

Tweedie emphasised the inadequacy of the present arrangements, saying there were airlines flying round the world with no aircraft on their balance sheets. Leisenring argued that the key question for the standard setter was whether the accounting captured the economic reality.

The conference showed, beyond doubt, that what constitutes economic reality depends upon where you live: is it the tax collector's reality, the stock market's reality or that of the creditors?

The author is editor of World Accounting Report, published by the Financial Times.

The Office of Fair Trading is investigating allegations that some supermarkets have colluded with food manufacturers to keep prices high by deterring price discounting.

Sir Bryan Carsberg, director general of fair trading, said his office might also look into allegations that Dixons, the electrical retailer, was trying to stop consumer electronics goods being supplied to warehouse clubs such as Costco.

Earlier this month the OFT ruled against Dixons' complaint that it was facing unfair competition from regional electricity companies.

Combined with the OFT's decision this week to investigate the net book agreement, which allows publishers to fix book prices, these two initiatives are aspects of a widespread assault on restrictive retailing practices launched by Sir Bryan since he took up his post last year. He believes such practices inflate the prices paid by consumers.

'We need to be vigilant about things that reduce competition at the retail level,' he said in an interview this week.

Sir Bryan made it clear that he would not be deflected by this month's Monopolies and Mergers Commission report on the perfume industry from his determination to root out restrictive retailing practices.

The commission, which was asked by Sir Bryan to investigate the industry, gave a green light to the selective distribution practices blamed for keeping scent prices artificially high.

Sir Bryan is pressing ahead with other cases. 'I continue to feel selective distribution schemes need challenging,' he said.

He denied that the report on the perfume industry set a precedent. 'I certainly would not accept that the adverse decision in this case has any implication for other cases . . . It doesn't mean that anything goes with selective distribution arrangements.'

Sir Bryan is also undaunted by the increasing extent to which UK competition policy is being affected by decisions taken in Brussels. In the case of perfumes this was highlighted by the fact that the European Commission had already approved the industry's selective distribution practices.

He said he did not view greater European Commission involvement with alarm because he was confident about its pro-competitive stance. He pointed out that the consequence of more European decisions was that the OFT, which sat on the European commission's advisory committee on competition, had influence over events in the rest of Europe.

Nevertheless, Sir Bryan did not try to hide his disagreement with the Monopolies Commission's report on perfume. He also said he was 'very disappointed' that the government had not included in last week's Queen's Speech a long-promised bill to increase his powers to combat restrictive practices.

Under planned legislation the director-general of fair trading would be able to agree legally binding changes to company behaviour without the need to involve the Monopolies Commission.

Sir Bryan is attacking restrictive retailing practices because he believes that they harm consumers. His view is strengthened by widespread complaints that retail prices in the UK are generally much higher than in the US.

Four of his referrals to the Monopolies Commission in the past year have involved selective or exclusive distribution arrangements. In addition to the perfume industry, he has referred newspaper, film and ice-cream distribution practices. He has also launched his own investigation into links between holiday companies and travel agents.

The number of retailing industry practices in which Sir Bryan has publicly taken an interest is mounting. In some cases, such as perfume and electrical goods, the concern is that manufacturers are not willing to supply discount retailers. In others, such as holidays operators, the concern is that suppliers are not able to get access to retail outlets linked to larger rivals.

But Sir Bryan's belief that restrictive distribution arrangements need to be challenged on grounds of competition is disputed by economists, lawyers and other professionals. Professor John Kay, chairman of London Economics, the economics consultancy, says that Sir Bryan's approach is 'very old-fashioned' because it does not take into account developments in economic theory over the past 20 years.

Prof Kay says that such practices are often essential if manufacturers are to add value to their products.

That was the view taken by the Monopolies Commission in the case of the perfume industry. Although Sir Bryan shows no sign of giving up his campaign to reform UK retailing practices, he will find it more difficult if the Monopolies Commission takes a similar view in other cases.

The High Court yesterday refused Surrey County Council permission to seek judicial review of the government's plan to widen the M25 London orbital motorway in stages.

The council argued that the 'piecemeal approach' to the overall project was unlawful and prevented a balanced appraisal of environmental impact. Mr Justice Macpherson said the application was premature. He said a public inquiry was due to examine the first phase of widening.

New cell blocks providing more than 2,000 extra places are to be built to cope with the growing crisis of prison overcrowding, it was announced yesterday.

Mr Michael Howard, home secretary, said the blocks - to be built at existing prisons - would take between 15 and 18 months to complete.

They are likely to be built in the north-west and the Midlands where overcrowding is most acute.

British Coal yesterday proposed the closure of Wearmouth Colliery in Sunderland, the last pit in the Durham coalfield, because of the lack of a market for its power station coal, Chris Tighe writes.

Wearmouth is one of seven pits British Coal has named for closure before Christmas.

Mr Davy Guy, north-east president of the National Union of Mineworkers, said Wearmouth had more than 100m tonnes of reserves. He said British Coal wanted to shut it by December 10. It seems unlikely that miners will oppose the closure.

The 720 workers at the Frickley pit near Pontefract, West Yorkshire, yesterday voted on plans to close the pit tomorrow. The result will be announced today.

Labour yesterday accused two former Conservative leaders of Westminster city council of delaying an independent report to limit the impact in next year's London local elections.

Mr Jack Straw, Labour's environment spokesman, said in two Commons motions that a report being compiled by Mr John Magill, the district auditor, had been delayed seven times.

The motions say that some Conservative councillors have followed a 'deliberate strategy' of causing 'as much hindrance to the district auditor as they can'.

They accuse Dame Shirley Porter and Mr David Weeks, both former leaders of the council, of trying to delay the report long enough to avoid discussion of the contents before the May elections.

Dame Shirley and Mr Weeks are said to have sought to force the district auditor 'to use his formal powers' and to have used 'other delaying tactics'.

Mr Magill is investigating Labour claims, repeated in the motions, that the council sold housing estates with the intention of 'gerrymandering the electoral composition of key marginal wards'.

Mr Weeks said the delays were a matter for the auditor. 'I categorically deny that any of the delays have been caused by anything that I have done,' he said. Dame Shirley was not available for comment.

Labour says that an influx of homeowners helped the Conservatives to win 45 of the council's 60 seats in the last elections in 1990, compared with the 32 they held in 1989.

The report, expected to contain about 14,000 pages of evidence, is set to be published next year, about 10 months after the original scheduled publication date.

Labour believes, however, that the most politically damaging developments for the Conservatives will come in a series of hearings which will follow publication.

The respondents' right to legal representation means that hearings are unlikely to start until several months after the report appears.

Mr Straw did not criticise Mr Magill but he called for a firm date for publication to prevent further delays.

Mr Peter Bradley, Westminster council's deputy Labour leader, said the government would not have tolerated such delays during an investigation into a Labour council.

Mr Bradley also accused the council of withholding information from Labour councils. 'Westminster city council is a law unto itself,' he said.

A possible new approach to Aids treatment has emerged from laboratory tests at St Bartholomew's Hospital, London, of a drug being developed to treat cancer.

Scotia, a UK pharmaceutical company, said yesterday that its anti-cancer compound EF13 killed white blood cells infected with HIV. The compound did not harm uninfected cells, and made them more resistant to HIV infection.

The next stage will be to hold clinical trials for EF13 as an Aids drug, which could take several years to com-plete.

The drug is the lithium salt of a fatty acid extract from evening primrose oil. It is believed to kill infected cells by generating lethal levels of free radicals.

Markets, Page 40

The British steel industry could collapse if government action is not taken against European countries which are subsidising their steel industries, a local authority conference was told yesterday.

Mr Keith Brookman, general secretary of ISTC steel union, said: 'We are the mugs of Europe. All the European governments agreed to eliminate subsidies and cut capacity. We did. The others by and large have not.'

Sir Patrick Sheehy, chairman of BAT Industries, has put together a consortium to plan a formal bid for the licence to run the National Lottery.

The company, called Rainbow, brings to eight the total of identified consortia committed to launching a bid or seriously considering one.

Apart from Sir Patrick, Rainbow's members include Mr Richard Wheatley, chairman of Leo Burnett, the marketing and advertising company; Mr Trevor Thatcher, former managing director of Vernons Pools; Mr Peter Borer, until recently managing director of BR Telecommunications; and Mr Barry Skipper, former chief executive of Booker's food distribution division.

Rainbow said that if it decided to go ahead it would have the backing of a number of blue-chip companies. The aim, it said, was to put together a management team capable of running the lottery.

In spite of Sir Patrick's chairmanship of BAT, it is unlikely that the company will provide financial backing.

Leo Burnett will be closely involved in planning the bid. It has appropriate marketing experience from its involvement in helping to launch the successful lottery in New Zealand.

Sir Patrick, acting as chief executive of Rainbow, said the group was evaluating the draft invitation to apply.

'In the event that we decide to proceed with a formal application, I am pleased to say that we can rely on the financial support of very major blue-chip organisations,' he said.

The announced bidders for the National Lottery include: The Great British Lottery Company, including Granada and Carlton; Camelot, backed by Cadbury Schweppes and Racal; and a joint venture between NM Rothschild and Tattersalls of Australia.

Mr Kenneth Clarke, the chancellor, was yesterday urged to leave fiscal and monetary policy broadly unchanged in next week's Budget.

The National Institute of Economic and Social Research says substantial tax increases on top of those already enacted could upset the recovery.

The institute concludes that the problem of the growing public sector borrowing requirement is 'not an urgent one' as, according to its calculations, the ratio of gross debt to gross domestic product will settle towards the end of the decade at a much lower level than that of the 1970s.

It adds that tax increases now to allow for pre-election tax cuts later would not fool the electorate.

'The electorate would see through the ploy, and would not thank the government for several years of taxation higher than it need have been,' says the insti-tute's quarterly economic review.

The review also recommends that the government steers clear of substantial monetary easing as another cut in interest rates now of one or two percentage points 'followed as it may well be by underlying inflation moving outside the announced target range', could undermine attempts to rebuild trust in the pronouncements of the Treasury or the Bank of England.

The institute's growth forecasts have changed little since the previous quarter's review. The prediction for gross domestic product growth this year remains unchanged at 2 per cent, while the forecast for next year is slightly up at 2.8 per cent.

It is considerably less bullish on manufacturing output, for 1993 at least, than three months ago. The forecast for growth in 1993 has been revised down to 2 per cent from the August forecast of 4.1 per cent. But for next year it forecasts growth of 3 per cent, rather than 2.4 per cent predicted in the last review.

Forecasts for inflation have also been revised down in the wake of an encouraging slowdown in growth of the retail prices index. This year the institute expects underlying inflation - the RPI excluding mortgage interest payments - to reach 3.2 per cent in the fourth quarter of 1993, compared with the same period a year earlier. Only next year will it breach the upper limit of the government's 1 per cent to 4 per cent target range, ending the year at around 4.2 per cent.

The institute is also slightly more optimistic than the government about the state of public-sector finances. It leaves the deficit forecast for the current year unchanged at Pounds 46bn, compared with the Treasury's forecast of Pounds 50bn, but puts the deficit at Pounds 35bn for 1994-95 compared with the Treasury forecast of Pounds 44bn.

The institute expects unemployment to continue falling gradually next year, albeit with rises in some months.

The review urges Mr Clarke to restate medium-term financial strategy, which is not comprehensive enough. 'The financial framework must be seen as part of a complete economic strategy which is designed to achieve the wider goal of economic prosperity, defined to include growth of output and employment as well as stability of prices,' it says.

National Institute Economic Review, November 1993, NIESR, 2 Dean Trench Street, Smith Square, London, SW1P 3HE, Pounds 75 annual subscription, Pounds 18 single issue.

The value of the initiative launched by the government in 1988 to regenerate the south Wales valleys is cast into doubt by a report published yesterday by the Government Statistical Service.

It shows that manufacturing employment in the area has fallen faster than in Wales as a whole, and that for every factory opened almost two have closed.

The first five years of the Programme for the Valleys saw Pounds 770m of funding from the government and European Community. A second five-year programme was launched in April with grants increased to Pounds 350m a year.

About 700,000 people live in the area and the initial programme aimed to repair environmental damage caused by the coal industry, strengthen the social fabric and build a new economy.

However the report says that manufacturing employment decreased by nearly 6,400 between 1988 and 1992, a fall of 11 per cent, compared with 7 per cent in Wales as a whole.

The report says that although 12,000 jobs were created between 73 new plants and 203 growing plants, 'all of these new jobs have now been more than offset by job losses'. It adds: '138 plants employing 8,600 people in 1988 have subsequently closed and 205 plants, though still in production, have lost 9,800 jobs.'

The biggest losses have been in electrical and electronic engineering, with 4,300 jobs lost. About 40 per cent of manufacturing employment is by foreign-owned companies, up from 31 per cent in 1988.

There has been only a small improvement in overall unemployment relative to the rest of the principality. The jobless rate in the valleys was 14.8 per cent in March 1988, 3.6 percentage points above that for Wales as a whole. By June this year the local unemployment rate was 13.2 per cent, still 3.3 percentage points higher.

The Welsh Office yesterday defended the initiative. 'The Programme for the Valleys is an ambitious attempt to end decades of decline and nobody thought it could be done within a few years,' it said.

Mr John Redwood, Welsh secretary, said in October that the first programme had drawn in Pounds 700m of extra private-sector investment, 2.6m sq ft of industrial floorspace had been provided, over 2,000 acres of derelict land cleared and more than 7,000 homes improved.

Programme for the Valleys; a statistical profile, 1993. Statistical Publications Unit, SD5, Welsh Office, Cathays Park, Cardiff CF1 3NQ. Pounds 5.

A merchant banker confessed to a colleague that he carried out a multi-million pound fraud stretching back years for the 'wonderful chaps' he worked with, the Old Bailey heard yesterday.

Mr Michael Hamilton told the court that his partner Mr Wallace Smith owned up to what he had done

two days before Wallace Smith Trust Company finally folded in April 1991 with a Pounds 100m 'hole' in its finances. However, Mr Smith had denied syphoning off huge amounts for himself, Mr Hamilton said.

Mr Hamilton told the jury the admission followed a confrontation with Mr Smith the previous day.

On that occasion he had accused Mr Smith of channelling clients' assets through overseas trusts before feeding them back into the bank to cover salaries and expenses.

Mr Hamilton said he asked Smith if he had set up the trusts to carry out the fraud. 'He said he had not . . . He said it just happened; it started, then it grew.'

Mr Smith, the 59-year-old founder of Wallace Smith Trust Company, denies fraudulent trading, false accounting, obtaining property by deception and theft.

The Crown claimed the once high-living banker 'masterminded' the 'massive and sophisticated' fraud after weaving a bogus web of overseas wealth.

Mr Timothy Barnes QC, prosecuting, alleged Smith committed his crimes under the noses of the Bank of England, his auditors and fellow direct-ors.

The trial was adjourned until today.

As the government approaches a decision whether to abolish British Gas's monopoly of household gas supplies, it has to consider what sort of market might be put in its place.

In its report last August the Monopolies and Mergers Commission did not offer a blueprint for the new market except to say that its success would depend on the break-up of British Gas. The details could be left to Ofgas, the regulator.

British Gas's potential competitors are now trying to promote their own ideas to the Department of Trade and Industry.

There are two basic issues. One is whether the market should be thrown open to competition as a single entity, or chopped up into regions, as is the case in electricity and water.

If various regions are formed it has to be decided whether they should be monopolies, at least initially, as is also the case in electricity and water, or whether they should be opened up to several competitors at once.

A number of independent gas companies have teamed up to promote the idea of a single, competitive market. A leading member of this group is United Gas. Its chairman, Mr Peter Bryant, said: 'Chopping the country up into regions is nonsense. You don't license Tesco to serve just the Manchester area.'

But other independents are calling for a regional approach. Mr Alan Marshall, managing director of Agas, which is part-owned by Elf, the French oil group, is sounding the alarm about the dangers of a 'free for all' in which the interests of domestic consumers could get trampled underfoot.

Instead, he is proposing a series of regional franchises. Each would be the territory of a single company which would have the right to supply gas to consumers, but would also have to accept obligations to ensure that everybody who wanted gas got it.

The issue is not just one of geography. Mr Marshall's concern is that a free-for-all would enable new entrants to go for the most desirable markets, and leave the rest either with British Gas or without gas at all. He believes the more vulnerable consumers might be disadvantaged by de-regulation.

'The government is in danger of creating unregulated monopolies which can cherry-pick their customers and dump costs on British Gas,' he told a conference earlier this month. 'This sort of free-market purism cannot be in the best interest of consumers at large.'

Mr Bryant dismisses these fears. Under his group's plan, gas companies would have to be licensed as public gas suppliers. They could select their own territory, but would have to be approved by the regulator and they would be obliged to serve everybody in it.

A variation of the regional franchise idea has been put forward by Mr Jonathan Stern, a consultant with Gas Strategies. He proposes breaking the country up into defined geographical areas - as many as 100 of them based on British Gas's districts.

The regulator would award franchises to new suppliers in each area on the basis of competitive tender, taking into account their ability to meet a set of conditions. Franchises would be for five years, or long enough to underpin contracts with gas producers. Franchisees would be required to advertise their terms and accept any customer who came forward.

Gas companies could apply for as many areas as they wanted, although the number of successful bidders in any single area might have to be limited.

Mr Stern agrees there is a danger that nobody might bid for some areas, in which case British Gas would be left to supply them. But he says British Gas would be compensated for the cost of this by having its monopoly phased out rather than abruptly terminated.

Mr Ian Powe, director of the Gas Consumers Council, said yesterday that members would be opposed to regional franchises if they contained any suggestion of regional monopolies for any length of time.

He said, however, that the council might accept some geographical system if it was a necessary step to a free market, provided that consumers were not denied choice.

------------------------------------------------------------------------ ECONOMIC ACTIVITY - Indices of industrial production, manufacturing output (1990=100); engineering orders (Pounds billion); retail sales volume and retail sales value (1990=100); registered unemployment (excluding school leavers) and unfilled vacancies (000s). ------------------------------------------------------------------------ Indl. Mfg. Eng. Retail Retail Unem- prod. output order* vol. value* ployed Vacs. ------------------------------------------------------------------------ 1992 1st qtr. 95.0 93.4 30.8 98.7 99.5 2,635 118.0 2nd qtr. 94.9 93.8 30.8 99.4 104.5 2,708 116.6 3rd qtr. 96.0 94.2 30.2 99.6 104.8 2,805 115.9 4th qtr. 96.6 94.2 31.0 100.4 123.5 2,918 118.1 September 96.7 94.3 30.2 100.3 104.8 2,841 111.5 October 97.6 94.8 31.2 100.8 109.4 2,868 113.5 November 96.4 94.1 31.4 100.6 118.0 2,913 117.3 December 95.8 93.5 31.0 99.8 143.1 2,972 123.4 1993 1st qtr. 96.7 95.2 31.7 102.0 105.0 2,967 121.3 2nd qtr. 97.7 95.8 31.6 102.4 110.0 2,923 122.3 3rd qtr. 98.7 95.7 103.4 111.3 2,914 127.6

January 96.2 94.7 31.4 101.7 104.1 2,992 120.3 February 97.4 95.6 31.2 102.0 104.4 2,967 120.5 March 96.5 95.2 31.7 102.2 106.6 2,941 123.2 April 96.9 95.6 31.6 102.1 110.9 2,940 123.5 May 98.5 96.9 31.5 101.8 109.3 2,917 123.6 June 97.7 94.9 31.6 103.3 109.9 2,912 119.7 July 98.7 96.0 31.3 103.1 111.3 2,916 127.6 August 98.6 95.4 31.9 103.4 111.0 2,922 128.0 September 98.7 95.8 103.8 111.6 2,904 127.3 October 104.0 115.6 2,855 134.4 ------------------------------------------------------------------------ OUTPUT - By market sector; consumer goods, investment goods, intermediate goods (materials and fuels), engineering output, metal manufacture, textiles, clothing and footwear (1990=100); housing starts (000s, monthly average). ------------------------------------------------------------------------ Cnsmer. Invest. Intmd. Eng. Metal Textiles Housg. goods goods goods output mnfg. etc. starts* ------------------------------------------------------------------------ 1992 1st qtr. 95.6 90.4 96.9 90.1 87.1 88.2 14.0

2nd qtr. 96.3 90.4 96.3 90.0 87.4 88.6 14.5 3rd qtr. 96.3 91.7 98.0 90.8 86.9 90.1 13.1 4th qtr. 96.5 93.1 98.6 91.5 84.0 90.8 10.6 September 96.6 91.9 99.0 91.0 85.7 91.0 12.6 October 96.3 94.7 99.9 93.0 85.5 91.2 11.8 November 95.7 92.8 98.8 91.1 85.5 90.9 10.8 December 97.3 91.7 97.1 90.3 81.1 90.2 9.2 1993 1st qtr. 97.1 93.9 97.8 92.0 86.7 89.3 15.6 2nd qtr. 97.6 94.8 99.2 93.3 87.0 90.3 16.7 3rd qtr. 97.9 94.2 101.3 93.1 84.8 90.7 15.2 January 96.7 93.8 97.0 91.9 87.5 90.3 14.4 February 97.1 94.4 99.1 92.3 86.5 89.0 14.0 March 97.4 93.5 97.4 91.7 86.1 88.7 18.5 April 97.1 94.9 97.6 93.1 87.5 89.6 16.5 May 98.3 96.1 99.8 94.7 88.6 91.8 16.4 June 97.2 93.3 100.1 91.9 84.9 89.4 17.3 July 98.0 94.8 101.1 93.6 85.7 90.7 15.1 August 97.5 94.2 101.5 92.6 84.2 90.9 14.8 September 98.4 93.7 101.3 93.0 84.4 90.5 15.8 ------------------------------------------------------------------------

EXTERNAL TRADE - Indices of export and import volume (1990=100); visible balance (Pounds m); current balance (Pounds m); oil balance (Pounds m); terms of trade (1990=100); official reserves (end period) ------------------------------------------------------------------------ Export Import Visible Current Oil Terms of Reserves volume volume balance balance balance trade* US Dollars Bn ------------------------------------------------------------------------ 1992 1st qtr. 101.4 97.5 -2,910 -2,038 +400 101.1 44.31 2nd qtr. 103.5 101.1 -2,967 -2,506 +355 102.6 45.70 3rd qtr. 103.4 101.7 -3,223 -1,629 +337 103.0 42.68 4th qtr. 105.4 103.3 -4,306 -2,447 +395 98.8 41.65 September 103.2 100.9 -956 -645 +81 102.5 42.68 October 106.1 101.9 -1,092 -843 +168 99.2 42.14 November 106.3 102.4 -1,313 -1,097 +103 98.5 42.09 December 103.7 105.7 -1,901 -1,620 +124 98.7 41.65 1993 1st qtr. 106.9 103.7 -3,076 -2,564 +418 102.8 40.90 2nd qtr. 105.8 101.9 -3,056 -2,435 +536 102.0 41.90

January 105.9 103.9 -1,109 +122 104.0 42.56 February 108.7 104.8 -1,047 +229 101.6 43.45 March 106.2 102.5 -920 +67 102.8 40.90 April 103.9 101.5 -1,172 +186 102.1 41.66 May 104.9 100.7 -950 +270 101.9 41.73 June 108.7 103.4 -934 +80 102.2 41.90 July 105.4 102.7 -1,064 +281 102.1 43.32 August 110.8 100.9 -419 +242 103.6 43.16 September 43.04 October 43.55 ------------------------------------------------------------------------ FINANCIAL - Money supply (annual percentage change), M0, new M2 (retail deposits and cash), M4; bank sterling lending to private sector; building societies' net inflow; consumer credit**; Clearing Bank base rate (end period). ------------------------------------------------------------------------ Bank BS Cnsmer. Base MO M2 M4 lending inflow* credit** rate % % % Pounds m Pounds m Pounds m % ------------------------------------------------------------------------ 1992

1st qtr. 2.0 7.6 6.1 +4,932 266 +142 10.50 2nd qtr. 2.3 5.9 5.3 +9,773 77 +5 10.00 3rd qtr. 2.4 5.4 5.2 +5,694 -262 -11 9.00 4th qtr. 2.7 5.0 4.5 +4,377 214 +226 7.00 September 2.2 4.7 4.7 +457 -264 -25 9.00 October 2.3 5.1 5.2 +3,408 281 +72 8.00 November 2.9 4.7 4.4 -35 -184 +17 7.00 December 2.9 5.3 3.8 +1,004 117 +137 7.00 1993 1st qtr. 4.4 4.9 3.4 +4,456 820 +400 6.00 2nd qtr. 4.3 5.6 3.6 +4,906 1,713 +525 6.00 3rd qtr. 5.1 5.3 3.7 +6,450 -69 +918 6.00 January 4.0 4.7 3.3 +2,730 363 +150 6.00 February 4.6 5.1 3.4 +1,251 208 +54 6.00 March 4.7 4.8 3.6 +475 249 +196 6.00 April 4.8 5.5 3.5 +1,946 1,069 +194 6.00 May 3.5 5.8 3.8 +1,908 700 +118 6.00 June 4.5 5.5 3.4 +1,052 -56 +213 6.00 July 4.8 5.4 3.5 +1,993 -61 +204 6.00 August 5.2 5.0 3.6 +2,460 -132 +225 6.00 September 5.3 5.5 3.9 +1,997 124 +489 6.00

October 5.4 258 6.00 ------------------------------------------------------------------------ INFLATION - Indices of earnings (1990=100); basic materials and fuels; wholesale prices of manufactured products (1990=100); retail prices and food prices (Jan 1987=100); Reuters commodity index (Sept 18th 1931 =100); trade weighted value of sterling (1985=100) ------------------------------------------------------------------------ Earn- Basic Whsale. Reuters ings matls.* mnfg.* RPI* Foods* cmdty.* Sterling* ------------------------------------------------------------------------ 1992 1st qtr. 113.4 97.6 107.3 136.2 129.0 1,599 90.6 2nd qtr. 113.7 96.5 108.8 139.1 129.1 1,598 92.3 3rd qtr. 114.9 94.7 108.9 139.0 127.3 1,542 90.9 4th qtr. 116.4 100.7 109.7 139.6 127.7 1,648 79.8 September 115.4 95.2 108.9 139.4 127.1 1,540 88.2 October 117.0 97.8 109.3 139.9 127.4 1,610 80.8 November 116.1 101.3 109.8 139.7 127.3 1,656 78.3 December 116.0 103.0 109.9 139.2 128.4 1,675 80.0 1993 1st qtr. 118.0 104.2 111.2 138.7 130.1 1,740 78.5

2nd qtr. 117.9 102.7 113.1 140.9 131.5 1,667 80.2 3rd qtr. 118.6 100.1 113.5 141.3 131.2 1,647 81.0 January 117.0 103.9 110.6 137.9 128.8 1,703 80.6 February 118.2 104.3 111.1 138.8 130.2 1,759 76.8 March 118.7 104.3 112.0 139.3 131.3 1,758 78.2 April 117.6 103.3 112.9 140.6 130.8 1,672 80.5 May 118.3 102.7 113.2 141.1 132.2 1,669 80.5 June 117.8 102.1 113.3 141.0 131.4 1,661 79.6 July 118.3 101.1 113.5 140.7 131.3 1,690 81.3 August 118.9 100.3 113.5 141.3 131.5 1,636 81.0 September 118.7 98.8 113.5 141.9 130.9 1,616 80.8 October 98.7 113.7 141.8 130.0 1,584 80.4 ------------------------------------------------------------------------ *Not seasonally adjusted **Net changes in amounts outstanding, excluding bank loans. ------------------------------------------------------------------------

Evidence of a faltering recovery in Britain's construction industry emerged yesterday with the announcement that orders for new work were up 10 per cent in the three months to the end of September compared with the corresponding three months last year.

Department of the Environment figures show orders in the first nine months up 7.5 per cent compared with the first three quarters of 1992. Most of the rises have been in public and private housing work and other public construction.

The industry fears that these sectors may be hit badly in next week's Budget. Most vulnerable is thought to be government spending on housing associations, which the chancellor is expected to trim by at least a further Pounds 300m in 1994-95.

Orders for housing associations and other public housing jumped by 45 per cent in the first nine months of this year. Private housebuilding orders rose 8.8 per cent over the same period.

Housebuilders said that the fragile recovery in private housing would be undermined if the chancellor decided to announce further cuts in mortgage tax relief in the Budget.

Private investment in factories, warehouses, shops and offices has remained at a low ebb, with industrial orders rising only 1.8 per cent and private commercial orders at about the same level as in the first nine months of last year.

Private industrial and commercial orders, however, rose sharply in the three months to the end of September - both rose by 11 per cent compared with the corresponding period last year.

Mr Christopher Vickers, construction spokesman for the Royal Institution of Chartered Surveyors, said: 'The latest figures are encouraging but surprising given the present mood of the industry.'

He added: 'New-order figures over the last year have been extremely erratic. A sustained improvement in workload is necessary before we can be sure recovery is really under way. The construction industry waits with bated breath for the chancellor's Budget.'

About 150,000 new home starts are expected to be registered with the National House Building Council this year, about 19 per cent up on last year and the best level for three years, the NHBC said yesterday.

Fourteen bottles of Scotch whisky, part of the cargo of the SS Politician, which ran aground in the Outer Hebrides in 1941, sold for Pounds 11,462 at Christie's in Glasgow yesterday. Six went to a Glasgow restaurateur. The wreck inspired Sir Compton Mackenzie's novel Whisky Galore. The 1949 film, starring Gordon Jackson (left) and James Robertson Justice, immortalised the story of thirsty islanders who plundered the wreck and thwarted officialdom.

Investors and creditors of Edington, the Manchester merchant bank which went into administration in April 1991, are likely to get more than 90 per cent of their money back.

Mr Philip Ramsbottom, joint administrator and head of corporate recovery at KPMG Peat Marwick's Manchester office, will pay another 11p in the pound before the end of this month. The distribution, worth Pounds 3.1m, is the fourth, and brings the total paid so far to Pounds 24.2m, or 85p in the pound.

Mr Ramsbottom expects another 5p to be distributed next year, in line with his prediction two years ago. However, much of Manchester's financial community now expects the distribution to exceed 5p, or to be followed by another payment.

Edington - the merchant-banking arm of Henry Cooke Lumsden, the Manchester stockbroking and financial services group - was forced into administration after some local authorities declined to put funds of Pounds 15m back on deposit after withdrawing them to balance year-end accounts.

Individual investors have increased their participation on the London Stock Exchange for the first time since 1989, figures released yesterday by the exchange show.

The Stock Exchange's Quality of Markets Review for autumn shows that in the first nine months of this year individuals' share of turnover, by volume, rose to 16 per cent from 14 per cent a year ago.

This comes when overall turnover has been particularly strong. In the third quarter of 1993 the total value of transactions on the London and Irish stock exchanges was a record Pounds 146.7bn, up 2.7 per cent from the third quarter of 1987, the previous quarterly record.

But the data suggest that the increased activity is more likely to be the result of individuals selling shares rather than buying them. In bargains of up to Pounds 50,000 in size, where small investors are likely to be the predominant executors, sales of securities marginally outweighed purchases.

However, in bargains of Pounds 50,000 or over purchases outweighed sales, particularly for transactions of Pounds 1m or more.

Meanwhile, the exchange found that the 'touch' - the average difference between the best buy offer and the best sell offer for a given share - narrowed to its lowest level since the stock market crash of 1987.

The average touch has narrowed from 1.2 per cent of share price in January 1992 to 0.7 per cent at the end of September 1993.

Some 80 per cent of bargains of Pounds 2,000 or less - likely to have been struck on behalf of individual investors - were conducted at the touch.

A narrowing of the touch suggests greater liquidity.

Stock Exchange Quarterly with Quality of Markets Review. Publicity and Promotions Unit, Stock Exchange, London EC2N 1HP. Pounds 16.

The temptation for Mr Kenneth Clarke, the chancellor, to raise badly needed government revenues from the pensions sector must be very great.

Government estimates are that tax reliefs associated with pensions are between Pounds 14bn and Pounds 15bn a year. Numbers like that catch the eye in a year when the government will have to borrow Pounds 50bn to meet its own expenses.

The pensions industry now expects that there will be curbs on tax breaks for the sector. But what form they will take is a subject of some debate.

Mr Andrew Evans, partner in the executive benefits group at accountancy firm Price Waterhouse, said a tax on pensions could be a relatively attractive political option in spite of the government's avowed policy to encourage individuals to make more provision for themselves.

He said: 'It's easier to raise revenues from pensions because it is difficult to explain the consequences from this action. It's a step removed from most people's day-to-day expenditure.'

Certainly that was how it turned out last March when Mr Norman Lamont, then chancellor, cut the amount of recoverable advance corporation tax paid on corporate dividends that pension schemes could claim from 25 per cent to 20 per cent of the dividend's value. For weeks the industry barely murmured its objections, although the effect of the change was to deprive schemes of 6 1/4 per cent of their annual cashflow earned on UK shares.

Finally, the industry trade body, the National Association of Pension Funds, succeeded in extracting a promise that further reductions in recoverable ACT were not planned. But experts remain uneasy that the promise will be kept.

Mr Andrew Wilson, partner at consulting actuaries R Watson and Sons, said that further reductions in recoverable ACT would reap the government far less than it believed. The Institute for Fiscal Studies has said a reduction to 10 per cent will raise Pounds 3bn a year.

'But the net figure is closer to Pounds 500m,' Mr Wilson said. That is because the resulting loss in cashflow will force companies to contribute an additional Pounds 3.5bn a year to their pension schemes, thus reducing the amount of ACT paid to government in the first place.

Mr Evans noted that tax advantages occurred at three stages in the pension cycle, when a contribution was made, while investment income was earned and, through the availability of a tax-free lump sum on final benefits, tax relief on withdrawals. 'It would be very dangerous to tax pensions at all three points,' he said.

There is a growing consensus that the tax-free lump sum is an anomalous tax break and should be phased out. The institute has said the government could raise an additional Pounds 1bn a year by eliminating it.

When this change was last seriously proposed by Mr Nigel Lawson, now Lord Lawson, in 1988, it sparked one of the loudest public outcries of his term, according to his memoirs.

The mood may have changed, however. The government's own Pension Law Review Committee wrote in a report that was published in September: 'We received a considerable amount of evidence from institutions suggesting that in return for simplicity of administration the right to receive a tax-free lump sum might be conceded.'

Mr Evans pointed out that such a change could only be phased in over time, but that the government might not wish to wait so long to see an improvement in its finances.

Other possible tax changes include the suggestion of Mr John Maples, the former Treasury minister, that the tax relief afforded on contributions be abolished in favour of tax-free pensions. This would raise Pounds 7bn immediately while cutting revenues in the future.

There would be significant difficulties, however, and officials have recently indicated that the proposal will not be adopted.

Mr Paul Johnson, researcher at the Institute for Fiscal Studies, said it was more likely that the chancellor would seek to restrict the level of tax relief on contributions to the basic rate of 25 per cent or even to reduce it to 20 per cent. The first measure would raise between Pounds 500m and Pounds 1bn while the second could add Pounds 2bn to Pounds 3bn to the public coffers.

As crowds of commuters flowed to work yesterday on foot, the words of TS Eliot's The Waste Land came alive on London's streets.

But this time it was not death but a power cut on the Underground that had undone so many under the brown fog of a winter dawn.

Even by the standards Londoners are used to enduring, yesterday's snarl-up was remarkable. Across the capital hundreds of thousands of commuters found their local Tube station barricaded and bus-stops swamped by restless passengers.

Ms Janet Brown, a civil servant, was due at a conference in Westminster at 9.15am. But at 7.50am, the Central, Circle and District lines at Notting Hill Tube station had been closed.

Crowds of people milled at the station's four exits and in the busy west London street, hoping for a bus or taxi to come to their rescue. But many wore the resigned expression of those who knew, from bitter experience, that when the Tubes are down the buses will be packed and the chance of a empty taxi is less than a snowball's in hell.

After an hour's walking - with fellow commuters three abreast - Ms Brown picked up a bus at Marble Arch only to sit for a further hour as the bus inched down Oxford Street. She reached Westminster two hours late. She had not seen a single cab with its for hire sign illuminated.

But yesterday's real victims spent much of the morning in tunnels underneath central London, reading and rereading their newspapers.

Just past Queensway passengers on one Central Line train sat stoically waiting for information, never a word passing between them.

As the eye-rolling and paper-rustling reached fever pitch a determined supply-teacher strode from the back of the train and headed for the driver's cabin.

A class of eight-year olds was waiting for her, she said. Why aren't we moving?

The driver couldn't say. Not good enough, said the teacher, with nods of support from a decidedly chattier carriage. The driver disappeared. The train did not budge. It was there for almost an hour - but at least by then the inmates of the carriage were busy swapping their life stories.

Mr Michael Heseltine, trade and industry secretary, yesterday attempted to reassure the Commons that the government's new deregulation measures would not ride rough-shod over parliament's traditional authority.

His comments were made against a backdrop of ministerial concern that the bill could run into difficulties in the House of Lords.

The Department of Trade and Industry seeks sweeping powers to enable government departments to repeal hundreds of regulatory measures without primary legislation.

Mr Heseltine said the bill would have specific deregulation measures as well as the means to deregulate in the future. In an attempt to defuse a potential row over the powers to enable him to scrap rules, he said the process would still be subject to parliamentary procedure.

The government's concern about getting the measures though the Lords has been highlighted by a leaked government document showing that it is already looking at options in case the bill runs into difficulties.

One involves replacing a general power to scrap regulations with a power to delegate functions specified in the bill. Another involves establishing a parliamentary scrutiny procedure.

The DTI said it was examining all options before introducing the bill. It said there were no plans to 'avoid public scrutiny' through the use of orders in crown procedures.

Mr Robin Cook, shadow trade and industry secretary, asked why the government wanted to give itself special powers to axe regulations in what he described as a 'pathetic and mean-spirited' bill. 'Deregulation is offered to this session of parliament as a sort of grotesque parody of an industrial strategy,' he said.

The government was backed by Mr Peter Morgan, director-general of the Institute of Directors, who told Mr Heseltine at his group's annual dinner on Tuesday that he wanted the DTI to gain powers to get rid of regulations that were a burden on business.

The bill's details will be unknown until next month.

Mr Neil Hamilton, minister of corporate affairs, who heads the deregulation initiative, has said that the DTI wants powers to repeal by order many statutory instruments, allowing ministers to make regulations without the specific order of parliament.

Mr Hamilton yesterday denied that the bill would compromise safety standards. He said that the government's purpose was to update and improve regulation though 'careful pruning'.

A Labour amendment attacking the government's industrial record was defeated by 319 to 276 votes.

Mr Ian Lang, Scottish secretary, yesterday accepted the resignation of Mr Bill Fyfe, chairman of Greater Glasgow Health Board, Britain's largest health authority, James Buxton writes.

Mr Fyfe's position became increasingly difficult following a board decision which he instigated to dismiss Mr Laurence Peterken, the board's general manager.

Shortly after Mr Peterken was dismissed he was appointed to the newly created post of director of special projects by Mr Gerald Scaife, the chief executive of the National Health Service in Scotland.

Mr Scaife then investigated circumstances of Mr Peterken's dismissal while MPs put down questions to ministers in parliament. Mr Fyfe appeared to be losing the support of Scottish Office ministers.

Yesterday five members of the Greater Glasgow Health Board issued a statement saying: 'In the light of information now available we believe the correct procedure was not followed in the dismissal of Laurence Peterken.

'We have no confidence in the chairman and we call on him to resign forthwith.'

Mr Fyfe took over the chairmanship of the health board earlier this year. He had previously won ministerial approval as chairman of Ayrshire and Arran Health Board, where he stood up to trade unions, made savings and encouraged the formation of one of the first trust hospitals in Scotland.

Individual investors have increased their participation on the London Stock Exchange for the first time since 1989, figures released yesterday by the exchange show.

The Stock Exchange's Quality of Markets Review for Autumn 1993 shows that in the first nine months of this year individuals' share of turnover, by volume, rose to 16 per cent from 14 per cent a year ago.

This comes at a time when overall turnover has been particularly strong. In the third quarter of 1993 the total value of transactions on the London and Irish stock exchanges was a record Pounds 146.7bn, up 2.7 per cent from the third quarter of 1987, the previous quarterly record.

However, the data suggest that the increased activity is more likely to be the result of individuals selling shares rather than buying them. In bargains of up to Pounds 50,000 in size, where small investors are likely to be the predominant executors, sales of securities marginally outweighed purchases.

However, in bargains of Pounds 50,000 or over purchases outweighed sales, particularly for transactions of Pounds 1m or more.

Participation by small investors on the exchange has been falling almost steadily since 1980, when by volume it accounted for about 37 per cent of all bargains traded there.

Meanwhile, the exchange found that the 'touch' - the average difference between the best buy offer and the best sell offer for a given share - narrowed to its lowest level since the stock market crash of October 1987.

This trend started at the beginning of January 1992, when the average touch was 1.2 per cent of share price.

By the end of September 1993 that had narrowed to 0.7 per cent.

'The touch represents a real transaction cost to investors, especially private clients,' the exchange's bulletin says.

Some 80 per cent of bargains of Pounds 2,000 or less - likely to have been struck on behalf of individual investors - were conducted at the touch.

A narrowing of the touch suggests greater liquidity in the markets.

The exchange noted that the narrowing has not only not been limited to the largest and most liquid stocks but in fact has been even more pronounced in the case of less liquid stocks.

Among these the average touch was just over 10 per cent at the start of 1992 but has now fallen to 6 per cent of stock prices.

Stock Exchange Quarterly with Quality of Markets Review - Autumn Edition 1993. Publicity and Promotions Unit, London Stock Exchange, London EC2N 1HP. Pounds 16.

He has not slammed the door quite shut. But the operative word in that sentence is 'quite'. Mr James Molyneaux, the 73-year old MP for Lagan Valley and leader of the Ulster Unionists, holds a veto over Mr John Major's efforts to broker a comprehensive political settlement in Northern Ireland.

This week he added his voice to those predicting that efforts to secure a constitutional agreement - let alone a voluntary cessation of IRA violence - are probably doomed.

When Mr Major talks of the consent of the majority as the precondition for any new agreement he is talking about the Ulster Unionists. In the words of one cabinet minister, Mr Molyneaux's veto is 'absolute'. Mr Major knows well that without the backing of Mr Molyneaux he could never claim that vital 'consent' for any political settlement with Dublin. Nor could he carry with him his own Conservative and Unionist party.

For the past several weeks Mr Molyneaux had been watching from the sidelines the intense diplomacy between Mr Major and Mr Albert Reynolds. He let the Rev Ian Paisley's hard-line Democratic Unionist party make the running with its depressingly ritualistic condemnations of the threatened Whitehall 'sell-out' of the Protestant majority.

But this week Mr Molyneaux moved centre-stage. After the leak last week of draft proposals from the Dublin government for a successor to the 1985 Anglo-Irish agreement he joined the unionist critics of the Major-Reynolds initiative.

Mr Molyneaux is not a politician who speaks in short, sharp, sound-bites. He is disparaging of those who fail to understand the complexities of Northern Ireland. But in a 45-minute interview with the Financial Times yesterday his meaning was clear.

Take a few sentences from that interview. He was pressed at the outset on whether Mr Major and Mr Reynolds should break off their search for a new intergovernmental agreement. The response: 'Well, its futile, isn't it?'

The voters in the republic would agree to renounce its constitutional claim only in return for 'something which has the same effect as the territorial claim plus the enforcement of the territorial claim'.

Mr Molyneaux is careful not to criticise Mr Major directly. But he is scathing about the British government's willingness to allow the Hume-Adams 'peace initiative' to become entangled with political negotiations. The strategy drawn up by Mr John Hume, the Social Democratic and Labour party leader, and Mr Gerry Adams of Sinn Fein, was 'a fiendishly clever operation, totally lacking in principle'. The aim was the 'phased integration' of North and South, imposed by British troops over a 14-year period. The media had been tricked into presenting Mr Adams as a man of peace.

After 25 years of miserable violence Mr Major is going for the big prize of a global accord acceptable both to the Protestant and Catholic communities in the province and to Dublin. He is determined to explore the possibility that the IRA has tired of violence.

But Mr Molyneaux's fundamental point is that the leaked Irish proposals have shown there is no possibility of squaring Dublin's commitment to a united Ireland with the wishes of the majority in the province. The 'three-stranded' approach to a settlement had lost its validity. The notion behind it - that 'nothing could be agreed until everything is agreed' - was 'completely daft'. It was better then to restart talks on devolved government in Ulster.

Here Mr Molyneaux's words will cause some surprise. He has always been known, in the jargon of Ulster unionism, as an integrationist - a supporter not of a devolved assembly but of tying the government of the province much more closely to the political process at Westminster. Now he is arguing for the focus to switch to all-party talks on a new power-sharing assembly. Ulster needed 'close-contact' government before it could begin to explore new relationships with the Republic. If Mr Hume was willing to return to the table, then progress could be rapid.

That view is shared neither in London nor among the constitutional nationalists in the north. Without a comprehensive settlement it is hard to see the SDLP agreeing terms for an assembly.

Mr Major's aides understandably were searching for a positive gloss. Mr Molyneaux had not said the prime minister should break off talks with Mr Reynolds. It was to be expected that the Ulster Unionists would harden their position from time to time to avoid being outflanked by the DUP. As in all negotiations, it was inevitable that all those around the table would not offer public concessions.

So as long as Mr Molyneaux leaves the door ajar Mr Major will soldier on. Nothing is lost until everything is lost. True enough perhaps. But hardly encouraging.

The Confederation of British Industry yesterday urged the government to take further steps towards giving the Bank of England more independence.

The day after Mr Kenneth Clarke, the chancellor, announced that the Bank would in future decide the precise timing of changes in borrowing rates, the CBI's ruling council unanimously approved a policy paper arguing the case for greater independence of the central bank.

It also expressed the hope that a further cut in interest rates of around half a point might be considered in the near future.

The chancellor hinted at the recent CBI conference that he was lukewarm about the idea of more independence for the Bank, even though two of his predecessors - Lord Lawson and Mr Norman Lamont - supported the idea.

Mr Andrew Sentance, CBI director of economic affairs, said the UK had the opportunity to break out of its historic pattern of high inflation and high interest rates. He added: 'Now is the time to make the institutional changes which will safeguard against a future resurgence of inflation by developing the more independent role that the Bank of England has begun to assume.'

The CBI has already welcomed the steps taken last autumn to make economic policy-making and the conduct of monetary policy more open to outside scrutiny.

But the organisation is arguing that the changes implemented so far are not extensive enough. It said yesterday that countries with independent central banks had a generally better record of combining growth with low inflation.

The rightwing Conservative 92 Group is set to retain a substantial role in running the party in spite of efforts by the newly formed Mainstream group to reduce its influence.

Mainstream, based on the pro-European Union Positive Europe group and the leftwing Lollards, has decided to try to widen its appeal by backing four of the nine rightwingers on the executive of the 1922 committee of Tory backbenchers in today's elections. The decision is in line with attempts by Mainstream organisers to portray the group as a coalition representing a range of opinion, rather than a centre-left faction.

Mainstream was formed to combat the success of the 92 Group, led by Sir George Gardiner, the Thatcherite MP for Reigate, which took nine of the 12 executive seats last year.

Mainstream's leaders, who include Mr Cranley Onslow, a former 1922 committee chairman, say they hope to prompt a display of loyalty to Mr John Major, the prime minister. They accuse the right of disloyalty over Europe, and of misrepresenting backbench opinion about the balance between public-spending cuts and tax increases in next week's Budget.

However, Mainstream has included three 92 group members - Mrs Marion Roe, Mr Bob Dunn, and Mr Michael Neubert - and one former member - Sir Anthony Durant - in its slate of candidates. The line-up also includes two sitting members with links to the right - Sir Anthony Grant and Sir Terence Higgins.

All except Sir Anthony Durant also appear on the 92 group slate, virtually guaranteeing their election. Sir Anthony is replaced by Mr David Evans, the rightwinger. Both groups are backing Sir Donald Thompson, an unaligned former junior minister.

The crucial battle will be for the remaining five seats, for which the 92 group is putting up Sir George Gardiner, Sir Ivan Lawrence, Mr James Pawsey, Mr John Townend, and Sir Rhodes Boyson - all sitting members regarded by Mainstream as hard line rightwingers. Mainstream has made these MPs its main targets, and will regard the election as a defeat if it fails to unseat most of them.

The Mainstream slate includes Sir Geoffrey Johnson-Smith, Mr David Sumberg, Mr Peter Butler and Mr Nigel Forman. In a separate election, Sir Geoffrey is being challenged by Mr Dunn for one of the committee's two vice-chairmanships.

The Labour left suffered a blow last night when Mr Peter Hain, the MP for Neath, lost his position as secretary of the soft-left Tribune Group.

Mr Hain, who has used the secretaryship to try and restore Tribune's reputation as a forum for vigorous policy debate, was edged out by Ms Janet Anderson, the Labour MP for Rossendale and Darwen.

Royal Bank of Scotland yesterday became the first leading lender to reduce its mortgage rate by the full 0.5 percentage points that bank base rates were cut on Tuesday. The change to 7.49 per cent takes effect immediately for new borrowers and for existing borrowers from January 5.

Next week's Budget will for the first time include details of the spending incurred by the UK's intelligence and security services, the government announced yesterday.

This was disclosed with the publication of the intelligence services bill containing measures to open the secret services to scrutiny by a committee of six parliamentarians.

Sir Colin McColl, the head of the Secret Intelligence Service (MI6), said in his first appearance at a press conference that he welcomed greater openness about the service's work in gathering intelligence overseas. It was important for his staff and for people who helped them to know that the government remained committed to the service after the cold war.

Sir Colin said, however, that he would prefer not to take a higher public profile, or have his photograph published in the same way as Mrs Stella Rimington, head of the Security Service (MI5) which is responsible for counter-intelligence work inside the UK.

'Secrecy is our absolute stock in trade,' he said. 'It is important to the people who work for us and risk their lives that we remain a secret service.

'When the Central Intelligence Agency went open in the 1970s it worried a lot of their people. I want to send our people a signal that we are not going to open everything up.'

Sir Colin confirmed that, like all previous heads of MI6, he was known as 'C' after Captain Sir Mansfield Cumming, the first head of the service. He admitted to continuing the tradition of writing his memos in green ink.

Also making his first public appearance was Sir John Adye, head of the Government Communications Headquarters (GCHQ), the electronic eavesdropping organisation based at Cheltenham.

Sir John said that the new legislation would provide public assurance of GCHQ's commitment to work within the law, without risking the secrecy it needed for success.

Public expenditure plans for the next three years will include estimates of the aggregate budget for MI5, MI6 and GCHQ. Separate figures will not be published for each service in case this alerts opponents to shifts in emphasis.

For the first time, the services' budget will be open to scrutiny by Sir John Bourn, the head of the National Audit Office.

The new Intelligence and Security Committee will be appointed by the prime minister from among MPs and peers, following consultation with the leader of the opposition. It will examine the expenditure, administration and policy of the services, but not operational matters.

The committee will present an annual report to the prime minister which will be laid before parliament.

All three services will be subject to similar requirements for obtaining warrants to enter or interfere with property or intercept communications.

A new commissioner will review warrants and authorisations and report annually to parliament. A tribunal will be set up to investigate complaints against MI6 and GCHQ. The Security Service Tribunal already performs a similar function for MI5.

The senior government official responsible for Britain's export controls before the Gulf war admitted yesterday that at the time he was more concerned with the antiques trade than equipment used to build up Iraq's military regime.

Asked at the Scott inquiry on arms to Iraq why he had not spent more time on the day-to-day running of the department Mr Eric Beston, head of the Department of Trade and Industry's export control branch from 1985 to 1990, said he had greater priorities than exports to Iraq. Much more of his time was spent on antiques and heritage issues involving 'large expensive things owned by rich and powerful people'.

He said: 'Throughout this period there were what, at the time, seemed much bigger issues.' While maintaining that in some cases his view had not changed, he said that if he had had any indication 'that events in Iraq were going to move in the way that they did or that the Warsaw Pact was going to collapse, I might have had a different set of priorities'.

Earlier the hearing was told that officials who could have intervened to stop machine-tool exports to Iraq were barred from seeing vital intelligence material because of delays in security vetting.

In one case, according to Mr Beston, it took seven months to carry out positive vetting on a senior officer.

Asked why he had not seen intelligence documents outlining the munitions use of three proposed machine-tool exports for Iraq, although he had security clearance, Mr Beston said: 'I cannot account for it.'

Mr Beston was unable to shed light on a central area of the inquiry - why the DTI did not act on MI6 intelligence sent out in November 1987 identifying the military uses of proposed machine tool exports to Iraq. Just who saw the report and when it arrived at the DTI has been a focus of the inquiry because, at the time the intelligence was compiled, the DTI had not committed itself to approving a series of machine-tool export licence applications for Iraq. The hearing was told at a previous session that a copy sent to the Foreign Office was locked in a cupboard over Christmas.

Mr Beston said not all of his officials would have been able to see the report. He said one senior officer, Mr Tony Steadman, would not have had access since his positive vetting was not completed until January 1988 - he joined the department in May 1987.

A bid by Ulster loyalists 'preparing for war' in Northern Ireland to boost their arsenal with a shipment of arms and explosives was foiled yesterday.

The outlawed Ulster Volunteer Force admitted that the shipment - which included 300 assault rifles and two tonnes of explosives - had been destined for it. The group added that the seizure was a 'logistical setback' but pledged that they would make efforts to find new weaponry.

Customs officers, who described the find as the biggest ever arms seizure in Britain, swooped at Teesport, Cleveland, on a container ship from Poland carrying the cache after a tip-off from MI6.

Mr Albert Reynolds, the Irish prime minister, congratulated British customs and security authorities on the find.

Sir Patrick Mayhew, Northern Ireland secretary, said the operation was a good example of the continuing successes in the fight against terrorist evil by law enforcement agencies in the UK and elsewhere.

Mr Peter Robinson, Democratic Unionist Party deputy leader to whose east Belfast constituency the arms were headed, said he thought loyalist paramilitaries were arming themselves in the event of the British and Irish governments doing a deal with the IRA.

Mr Seamus Mallon, Social Democratic and Labour party security spokesman and deputy leader, said the seizure was 'clear evidence that loyalist paramilitaries are intent on pursuing their campaign of violence, rather than pursuing a lasting and peaceful settlement'.

Aegon Insurance is to ask the High Court for a judicial review of 23 decisions of the insurance ombudsman. If successful it would mean the ombudsman's decisions in favour of policyholders 'can no longer be described as binding on member companies', the ombudsman bureau said.

Only 150,000 of the estimated 200,000 to 250,000 computer or data users which should have registered with the Data Protection Register have done so, Mr Eric Howe, the registrar, has told the Commons public accounts committee.

Tougher rules on waste management companies will be brought into force on May 1, Mr Tim Yeo, environment minister, said yesterday.

Mr Hugh Dykes, the pro-European Tory MP, appeared last night to have survived an attempt to oust him as candidate for Harrow East at the next general election.

A motion that he should not be reselected was withdrawn at a meeting of the Harrow East constituency party executive. Officials said privately, however, that the reprieve might only be temporary.

The threat of company-wide industrial conflict at Vauxhall faded yesterday when members of the TGWU general union at the company's main plant in Luton, Bedfordshire, voted by two to one against striking over pay.

This follows last week's start of industrial action by the union at Vauxhall's Ellesmere Port plant on Merseyside.

Turkish authorities have issued an order for the detention of the administrators of Mr Asil Nadir's collapsed Polly Peck empire. The effect of the warrant is that they would be detained if they attempted to enter the country again.

Coopers & Lybrand, joint administrator with Touche Ross, said the warrant followed allegations of bribery made by the fugitive tycoon. It was co-operating with the investigation and it hoped that the matter would be resolved quickly.

'At no time were illegal payments made, considered or condoned, and never would be,' Coopers said. It added: 'We're obviously getting a bit close to Mr Nadir's bunker and so he's trying to slow up the administration.'

The former chief executive of the collapsed Farr Group construction company was jailed for two years yesterday for stealing Pounds 2m from the company's pension fund, in spite of promising to repay the missing money within three years, John Mason writes.

Mr Gerald Smith had been repaying the missing funds from a loan and his earnings as a business consultant, Southwark Crown Court was told. His jail sentence means he will not be able to make any further repayments, leaving the pension fund severely depleted.

Passing sentence Judge Laurie said he had to balance the individual interests of pension fund members against the public interest in ensuring dishonest company directors who stole pension fund assets were properly punished.

He had decided that the public interest was more important in this case.

Fraud is costing the social security system at least Pounds 1bn a year, the Commons public accounts committee said in a report yesterday.

Although the number of staff countering crime in the system has increased, the committee says some cases are not being detected and pursued early enough.

Criminals engaged in social security fraud make multiple claims for benefit, use false or stolen identity documents, counterfeit them, and break into Post Offices to steal documents. Fraudulent encashment of missing order books alone amounted to Pounds 85m last year.

The Department of Social Security calculates that fraud costs the benefits system at least Pounds 1bn a year, while other estimates put the loss at Pounds 2bn or more.

But individual fraud by claimants misrepresenting their circumstances accounts for the greater part of the loss.

Over the past six years staff fighting organised fraud have increased from 78 to 250. The committee was concerned that, although the cost-effectiveness of the staff could be demonstrated, no further increase was proposed. It urged the department to 'consider the degree of priority they are giving to this work'.

The committee said fraud prevention measures had been delayed by difficulties in co-ordinating the large number of social security branches.

Mr Michael Bichard, chief executive of the Benefits Agency, said its measures against fraud had saved Pounds 558m last year and led to the prosecution of 6,000 people.

He said order books had been redesigned with improved anti-fraud measures and trials of a barcoding system to prevent books being cashed fraudulently were being conducted.

'We are increasingly using information technology to identify criminal activities, prevent fraud and target the available resources more efficiently.'

Public Accounts Committee. Department of Social Security and Benefits Agency: Combating Organised Fraud. HMSO. Pounds 11

Labour's ruling National Executive Committee yesterday defied a threat by the party's northern region to break away, and insisted that it would press ahead with plans to merge the party's north of England and Yorkshire regions.

The merger plans have prompted opposition in the northern region - which covers Northumberland, Tyne and Wear, Durham, Cleveland and Cumbria - where officials are to ballot the 30,000 members on whether to declare independence from the rest of the party.

The NEC said that the decision to merge the regions had been taken by last month's party conference - as part of cost cuts - and could not be rescinded. But some in the region dispute this view, and the NEC also agreed to summon northern region officials to London to try to persuade them to abandon the ballot.

Northern region officials believe the merger would rob them of their identity.

Mr Nick Anderson, northern region chairman of the Labour party, said: 'We are determined the NEC should be made aware not just of the views of the northern region executive but of the entire Labour party northern region, on the basis of one-member-one-vote.'

Mr Anderson, who is also northern region secretary of the GMB general union, added: 'We hope when they have the ballot results they will take them into account.'

The GMB, the area's biggest union, said members were incensed at the insensitivity of the merger proposals. It said the NEC had failed to understand what the party's northern region had done in the last 14 years to create regional structures to help withstand the rundown of manufacturing industry and promote a regional identity.

The results of the ballot are expected to be announced at a delegate conference in the new year, probably in February.

The government last night admitted to meetings between ministers and Sinn Fein representatives and said it periodically received intelligence from individuals who may have been in touch with the IRA's political wing.

In the government's most detailed summary of its contacts with Sinn Fein, Mr Michael Ancram, Northern Ireland minister, said the meetings were with council delegations including a Sinn Fein councillor. They had been to discuss local constituency matters.

Responding to a parliamentary written question by Mr Jeremy Corbyn, Labour MP for Islington North, Mr Ancram said the government's main sources of information about Sinn Fein's views were 'public ones such as written documents and reports of interviews'.

The question of the government's contacts with Sinn Fein became an issue earlier this month after Mr Gerry Adams, the Sinn Fein president, said the party had been in 'protracted contact and dialogue' with the government.

THE senior government official responsible for Britain's export controls prior to the Gulf War admitted yesterday that at the time he was more concerned with the antiques trade than equipment used to build up Iraq's military regime.

Asked at the Scott inquiry on arms to Iraq why he had not spent more time on the day-to-day running of the department Mr Eric Beston, head of the Department of Trade and Industry's export control branch from 1985 to 1990, said he had greater priorities than exports to Iraq. Much more of his time was spent on antiques and heritage issues involving 'large expensive things owned by rich and powerful people'.

He said: 'Throughout this period there were what, at the time, seemed much bigger issues.' While maintaining that in some cases his view had not changed, he said that if he had had any indication 'that events in Iraq were going to move in the way that they did or that the Warsaw Pact was going to collapse, I might have had a different set of priorities'.

Earlier the hearing was told that officials who could have intervened to stop machine-tool exports to Iraq were barred from seeing vital intelligence material because of delays in security vetting.

In one case, according to Mr Beston, it took seven months to carry out positive vetting on a senior officer.

Asked why he had not seen intelligence documents outlining the munitions use of three proposed machine-tool exports for Iraq, although he had security clearance, Mr Beston said: 'I cannot account for it.'

The speed at which vetting was carried out 'depends who is pushing', he said, agreeing with Lord Justice Scott, who said that in some cases vetting could take days rather than weeks.

Mr Beston was unable to shed light on a central area of the inquiry - why the DTI did not act on MI6 intelligence sent out in November 1987 identifying the military uses of proposed machine tool exports to Iraq.

Just who saw the report and when it arrived at the DTI has been a focus of the inquiry because, at the time the intelligence was compiled, the DTI had not committed itself to approving a series of machine-tool export licence applications for Iraq. The hearing was told at a previous session that a copy sent to the Foreign Office was locked in a cupboard over Christmas.

Mr Beston said not all of his officials would have been able to see the report. He said one senior officer, Mr Tony Steadman, would not have had access since his positive vetting was not completed until January 1988 - he joined the department in May 1987.

Lord Justice Scott suggested that, given that export licence applications for Iraq had been in the system since May 1987, it was not clear to him that the intelligence report would have caused alarm in the DTI.

A growing number of British Telecommunication's managerial and professional staff are suffering from work-induced stress and are critical of the performance related pay system introduced this year, STE Research, the research arm of the Society of Telecom Executives, said yesterday.

Its survey found that 56.6 per cent of staff said they were suffering from work-related stress compared with 47.2 per cent two years earlier.

British Airways and British Midland Airways yesterday lobbied MPs against the introduction in next week's Budget of value added tax on domestic air travel.

Sir Colin Marshall, BA's chairman, and Sir Michael Bishop, BMA's chairman, said VAT on air fares would add about Pounds 40 to the typical return business fare.

Attacks on British holidaymakers in Florida and France have prompted the launch of a new insurance product. Accident & General is to introduce a policy compensating travellers who are mugged.

The policy is being sold through the National Association of Independent Travel Agents, whose members have more than 600 retail outlets.

The former chief executive of the collapsed Farr Group construction company was jailed for two years yesterday for stealing Pounds 2m from the company's pension fund - in spite of promising to repay the missing money within three years.

Mr Gerald Smith had been repaying the missing funds from a loan and his earnings as a business consultant, Southwark Crown Court was told. His jail sentence means he will not be able to make any further repayments, leaving the pension fund severely depleted, the court heard.

Passing sentence, Judge Laurie said he had to balance the individual interests of pension fund members against the public interest in ensuring dishonest company directors who stole pension fund assets were properly punished.

He had decided 'with a heavy heart' that the public interest was more important in this case. Mr Smith had deceived trustees of the pension fund 'right, left and centre' when he removed assets in a failed attempt to prop up the ailing company, the judge said.

Mr Smith started repaying the missing money soon after the collapse of the Westbury-based company in December 1990. By the time of his conviction last month he owed a further Pounds 1m. He had agreed to repay this at Pounds 30,000 a month.

Mr Cedric Clapp, a partner with Ernst & Young and an independent trustee of the Farr Group pension plan, had told the judge that a prison sentence would effectively wipe out the prospects of Mr Smith making any further payments.

Of the 150 fund members, the 12 who have retired will have their benefits paid in full, Mr Clapp said afterwards.

The US Congress is expected to press ahead next year with legislation authorising retaliatory trade measures in the financial services sector, even if the immediate need for the bill as a negotiating weapon in the Gatt talks has gone by then.

The Treasury had hoped the progress of the 'Fair Trade in Financial Services' bill through Congress would increase their leverage to persuade countries such as Japan, South Korea, Indonesia, the Philippines and Brazil to improve their offers to increase access to their financial markets as the Uruguay Round of Gatt negotiations draws to a close. The bill would allow the Treasury to restrict the expansion of banks and securities companies from countries which do not offer equal access to American businesses.

Treasury officials say they made some headway in recent visits to some of these countries, but are wary of predicting the outcome of the talks on financial services, which remains, from the US perspective, one of the biggest stumbling blocks to an overall Gatt agreement.

Although the Senate banking committee's attempt to agree on the bill's language was held up by an unrelated dispute on legislation to allow US banks to open branches outside their home states, in the House of Representatives the subcommittee on international development, finance and trade completed work on a draft.

The House has in the past been the most difficult obstacle to passage of similar retaliatory legislation, largely because of differences of opinion between the banking, energy and commerce and ways and means committees. Congressional aides expect, however, that this time these divergences will be smoothed out, enabling the bill to pass early next year.

These aides say that whether or not the Gatt talks are completed by the US deadline of December 15, the legislation will be needed.

In the event of a successful Gatt deal, it would be required to enforce the two-tier approach US negotiators want to apply in the financial services area, discriminating against 'free riders' which have not opened their markets.

Other aides caution, however, that the language of the bill, which has been carefully wrought to exclude the European Union from any retaliation threat, is so closely tied to the Gatt talks that it would need to be completely reworked in the event of a breakdown, or if the US fails to win the exemption it is seeking in the financial services sector from the obligation to apply the most favoured nation principle.

Sir Leon Brittan, the European Union's chief trade negotiator, raised hopes yesterday that the US would agree to revisions in the Blair House farm accord to unblock progress toward an agreement in the Gatt world trade talks.

After two days of meetings in Washington with Mr Mickey Kantor, US trade representative, Sir Leon said the US and Europe were discussing differences over agriculture 'in a positive manner'. He declined to go into detail.

Top trade negotiators from the US and EU will resume their Gatt talks in Brussels next Wednesday after their meeting in Washington this week 'defined the issues' and 'discussed viable alternatives'.

Although little concrete progress was evident after Tuesday's meeting, Sir Leon said the simple fact that his US counterpart was travelling to Europe next week indicated that the talks were still alive. 'He's a busy man and wouldn't come if there wasn't something worthwhile to discuss,' Sir Leon said in Paris.

France has threatened to veto a Gatt deal unless it obtains satisfaction through changes in the 1992 Blair House agreement.

An EU official portrayed the high-level talks in Washington positively, but emphasised that 'considerable obstacles remain' ahead of the mutually agreed December 15 deadline for a deal among the 111 governments that are party to the talks.

For his part, Sir Leon had made clear that the EU would insist on specific demands being met in the area of agriculture, the audiovisual industry and aeronautics - a reference to US objections to European subsidies for Airbus Industrie. He repeated the message in a brief meeting at the White House with President Bill Clinton.

The Brussels official said both sides had instructed their senior negotiators in Geneva to seek a preliminary agreement on all dossiers in time for Mr Kantor's next visit to Brussels, probably on December 1. That would let a draft EU-US agreement be submitted to a meeting of European foreign ministers on December 2.

'Sir Leon made clear that it (Gatt) should not be a last-minute deal,' the official said. The Washington talks covered all main sectors, including a broad market access package, the creation of a Multilateral Trade Organisation to replace Gatt, and agriculture.

Editorial Comment, Page 21

America's Thanksgiving gift to trade negotiators in Geneva is expected to be an unwelcome set of proposals to reform rules disciplining international dumping.

A clash over anti-dumping rules has long been anticipated by negotiators in the Uruguay round of talks on global trade liberalisation. Five separate texts have been presented in six years, and all have been rejected. The draft imposed at the end of 1991 was an arbitrated text, never agreed.

At the heart of the conflict has been a fundamental difference between the US - as a principal user of dumping laws and a fierce defender of its national prerogatives in this area - and the rest of the world, which at one time or another has felt victimised by what is seen as arbitrary use of unfair rules which lead with near-certainty to the conclusion that dumping has occurred.

But in the calm before the storm that is expected to erupt when the US list of amendments lands on desks across Geneva, officials recognise that something will have to be done to accommodate US concerns that the present text unreasonably weakens its power to act: 'I pray it will be the minimum,' one said.

From January this year, the US flagged its intention to challenge the existing draft text, in the teeth of near-universal opposition from the other 114 countries negotiating the Uruguay round.

'The danger is great,' one negotiator said. 'The US appears quite prepared to pull the plug on this issue. This would pull down the agreement we have on subsidies, which in turn would pull down our agreement on farm trade. The pack of cards would collapse.'

Most countries see the growing use of anti-dumping laws - duties and fines against imports that are alleged to be sold at prices below those charged in a domestic market - as creeping protectionism.

As customs barriers have fallen over the past decades, so dumping actions appear to have become the protectionist's weapon of first resort.

According to a recent World Bank study, average tariffs in the US manufactured goods sector would be 23 per cent today, compared with a nominal level of less than 6 per cent, if they were adjusted to account for the impact of dumping duties on imported steel, textiles and cars - the industries most affected.

As the number of dumping actions initiated has risen steeply since 1988, so an increasing number of countries have introduced their own anti-dumping laws - and have proven willing to use them. India and Japan initiated actions in 1992 for the first time.

Developing countries, which until 1985 had never initiated dumping action, have initiated around 40 a year for the past three years. Significantly, the US was the target of 20 dumping actions in the year to June 1993 - overtaking Japan (the target of just 13 actions), which is so often seen by the US as a leading 'dumper'.

In January this year, Mrs Carla Hills, the outgoing US trade representative, asked the International Trade Commission to study the net impact of dumping actions on US industry.

Her successor, Mr Mickey Kantor, has since reversed the request, but not without prompting questions on whether the higher import costs arising from dumping duties damage the competitivenes of US companies.

This has not prevented supporters of domestic anti-dumping policy from mounting a fierce defence of the existing regime, and an effective campaign pressing the US administration to lengthen its list of proposed changes to the intended Uruguay Round agreement.

In the House Ways and Means committee three weeks ago, Mr Eric Garfinkel, a leading Bush administration negotiator on the Uruguay round anti-dumping text, attacked the draft as 'highly political', and 'not a balanced or well-reasoned document'.

He detailed the need for various amendments, which seem likely to appear in the list presented to negotiators today. These include:

Scope and standard of review: the US fears the draft will allow Gatt panels to revisit the facts presented in a domestic dumping inquiry, rather than examine whether laws had been fairly applied.

Circumvention: the US says the draft will allow offending countries to side-step dumping duties by shifting production to other countries. It wants the power to put duties on 'like goods' being exported to the US from third countries without fresh investigation.

Sunset: the proposed draft says a dumping duty will expire after five years unless a review shows dumping is still occurring. The US objects to the need for fresh proof of dumping. Over 30 of the 268 dumping duties currently in effect in the US have been in place for more than 20 years.

Start-up: particularly relevent to high-technology industries, the US objects to rules which would allow companies to charge prices that are below true production cost during the start-up period before full economies of scale have been achieved. It wants the length of start-up to be defined

De minimis: the Uruguay round draft would block dumping inquiries if the effective dumping margin were less than 2 per cent, or if the volume of dumped product - and injury to domestic competitors - is 'negligible', defined as less than 1 per cent of the domestic market.

Standing: only governments are entitled to bring a dispute to Gatt under the present draft. The US wants non-government bodies to be able to bring actions - notably trade unions or environmental groups.

The list of proposed amendments was promised for last Wednesday. Successive postponements have frustrated other negotiators, and added to the prickly array of outstanding issues that must be resolved by December 15 if a Uruguay round package is to be completed successfully.

------------------------------------------------------------------------ ANTI-DUMPING: CASES INITIATED (JULY TO JUNE) ------------------------------------------------------------------------ 83-84 84-85 85-86 86-87 87-88 ------------------------------------------------------------------------ Australia 70 63 54 40 20 Canada 26 35 27 24 20 EU 33 34 23 17 30 US 46 61 63 41 31 Other developed countries 1 0 2 5 9 Developing countries 0 0 3 4 13 TOTAL 176 193 172 131 123 ------------------------------------------------------------------------ 88-89 89-90 90-91 91-92 92-93 ------------------------------------------------------------------------ Australia 19 23 46 76 61 Canada 14 15 12 16 36 EU 29 15 15 23 33 US 25 24 52 62 78 Other developed countries 12 5 9 21 8 Developing countries 14 14 41 39 38 TOTAL 113 96 175 237 254 ------------------------------------------------------------------------ Source: Gatt ------------------------------------------------------------------------

French Prime Minister Edouard Balladur yesterday told a meeting of more than 400 of his conservative government's backbench MPs that 'we have obtained nothing. . . of what we have asked' from this week's Washington talks on Gatt.

He spoke after his trade minister, Mr Gerard Longuet, was briefed on the outcome of the Washington talks by Sir Leon Brittan, Europe's Gatt negotiator, who on his return from the US yesterday stopped over at Paris airport.

Taking a robust line in front of his parliamentary majority, Mr Balladur said he would not respond to American calls that he should show 'leadership' in the Gatt talks if that meant abandoning French national interests. The prime minister's pessimism was echoed yesterday by the French Foreign Ministry which said, that 'at this stage, there is no sign of progress' on the main Gatt issues dividing the US and the European Union.

Equally, however, there was no suggestion from Paris that accommodation with the US on Gatt was doomed. Mr Longuet noted that Sir Leon had left some of his officials behind in Washington to continue talks, and that France's concern was to stay in permanent contact with the negotiators.

In the end-game under way in the Uruguay Round, France is increasingly frustrated at not being able to play a direct part on such issues as agriculture and audiovisual broadcasting, where it has taken a particularly tough line. Officials say they are confident Sir Leon will advise them and other EU governments on the state of play, but complained that Mr Longuet did not get this from the European commissioner yesterday.

In view of the December 15 deadline which France now implicitly accepts, Mr Balladur said yesterday he would want to know 'the state of things in the first days of December' so he could consult his ministers, his coalition and European partners. Gatt will top the agenda at next week's Franco-German summit in Bonn, which will precede a EU foreign ministers' meeting.

Japan is likely to present its official proposal to open its rice markets after the US and the EU manage to reach an accord on agriculture on the Uruguay Round.

A senior Japanese government official told Japanese reporters yesterday: 'Japan is involved in negotiations to prepare a plan it deems acceptable.'

Until now, the government has been reluctant to reveal that it was under talks over the lifting of its rice ban.

Japan is likely to put forward officially a compromise plan under which it will accept rice imports of 4 to 8 per cent of its domestic consumption for six years, and reach a decision over tarification of its rice market in 1999.

The government wants to appease domestic opposition to opening the rice market by leaving a decision up in the air, and it is unclear whether such a proposal would be acceptable to its trade partners.

Germany and Britain are concerned that failure to meet the December 15 deadline for the Uruguay Round of international trade talks will let the US distance itself further from Europe, diplomats said yesterday. Speaking on the eve of the annual Anglo-German summit, which will take place in Bonn, officials said the collapse of the Uruguay Round, whose deadline is December 15, would be 'catastrophic'.

'Germany and Britain are so dependent on exports. It would be very damaging if there was no agreement,' a British official said. But a senior German official went further in highlighting what it would mean for Europe as a whole.

'The case of Nafta, and the talks in Seattle with Asian countries last week, was the first time in which Europe was not involved. This is a signal. Despite what is said in public to the media, the US and Canada are focusing on Asia, and shifting away from Europe.'

The official added that while the Uruguay Round will be 'very much top on the agenda' in the one-day summit between Chancellor Helmut Kohl of Germany and Mr John Major, British prime minister, parallel talks between trade, defence and foreign ministers will focus on social, bilateral and security issues. These include:

Ways to tackle unemployment in the European Union. British officials implied the Delors white paper on reducing unemployment was 'too Keynesian', adding that they would prefer to seek more emphasis on training, flexibility and innovation;

Steel subsidies. German officials are angry about Britain's continuing opposition to proposed federal subsidies for Ekostahl, eastern Germany's largest steel mill on the grounds that the modernisation of the mill will contribute to over-capacity in the steel sector. Security, particularly ways in which to bring the countries of eastern Europe - and Russia - closer to Nato. German officials yesterday said there is still disagreement in Bonn about how to define, let alone extend security guarantees to eastern Europe.

The Mexican government is to reform the federal labour law in an effort to increase worker productivity.

The new law would scrap the seniority clause that restricts the ability of some companies to promote workers. It would also speed resolution of disputes between management and unions by replacing the current labour conciliation and arbitration panel with more streamlined tribunals.

The president has also sent Congress new laws to allow foreigners to operate trucks and buses in Mexico, and would permit foreign investment in maritime transport. The law also extends the maximum concession for private toll roads to 50 years.

'What we are seeing are the internal changes that are necessary to compete under the North American Free Trade Agreement,' says Mr Mario Dehesa, an economist with Grupo Financiero Serfin. 'We cannot compete with our hands tied behind our backs.'

The labour reform proposals are likely to be sent to Congress by December 15.

Thanksgiving is the ultimate American holiday because far more than any other, including Christmas, it reunites families. The Wednesday before and the Sunday after it are the year's busiest travel days. For 96 hours, the country pretty much shuts down.

Even the hyperactive President Bill Clinton and his family are ensconced for today's holiday in Camp David, the presidential retreat in Maryland's Catoctin Mountains he is said not to like very much. Before leaving he shared the traditional turkey at a Washington church hall providing free dinners for those without homes or families to go to.

There is a particular poignancy at this Thanksgiving for Mr Clinton and those who sweat loyally for him. For he has just lost two senior members of his team - Mr Howard Paster, White House head of congressional liaison, and Mr Roy Neel, deputy chief of the White House staff - who have declared that they want to spend more time with their families than one turkey dinner might allow.

It might seem odd that they should go after the great Nafta triumph for which both, with Mr Paster particularly visible, worked so hard. But for once this classic political excuse may be valid and no one in Washington, an eternally suspicious town, was seriously questioning it this week.

Mr Paster put it best. 'There are no recesses or weekends. The beeper and the phone respect no private time. And we have added a new standard of intensity.' For those with children and, as in his case, a spouse with her own career, balancing the priorities of life can get skewed, as the suicide of Vincent Foster, Mr Clinton's old friend and legal counsel, horribly demonstrated this summer.

Mr Clinton, like President Jimmy Carter before him, has publicly urged his staff to take more time off, but he takes little himself - 10 days on Cape Cod this summer and regular games of golf notwithstanding - and nor does his highly professional wife, Hillary. They both reckon they have a lot to do and not much time to do it in.

Similar motivation inspires the White House staff, many very young and more than willing, given the chance of a lifetime, to put in the seven-day weeks, 15-hour days, that have become routine. Most of their favourite bars and cafes are those that stay open very late and their attendance at private dinner parties around town can never be guaranteed.

Mr Paster and Mr Neel, both Washington veterans, knew what they were letting themselves in for and ultimately got out, without apparent regrets. Yet they will be replaced by people of comparable experience, like Mr Harold Ickes, the experienced New York operator whose own political lineage includes a father who was FDR's interior secretary.

Reports of a sharp rise in factory orders yesterday provided further confirmation that the pace of US economic growth is accelerating.

The Commerce Department said new orders for durable goods rose 2 per cent last month and 8.7 per cent in the year to October. This was broadly in line with analysts' projections and followed reports of a big rise in the Purchasing Managers' Index.

Mr Ron Brown, commerce secretary, noted that orders rose in eight out of 10 leading industrial sectors, indicating the recovery in manufacturing was broadly based. Increases in orders for capital goods indicated the economy's productive capacity was rising in line with higher consumer demand.

The rise in orders occurred in spite of an 11.6 per cent fall in defence orders last month, reflecting continuing budget retrenchment at the Pentagon.

Much of the strength in the civilian economy was concentrated in the volatile transport sector, where orders rose 5.5 per cent between September and October. Aircraft orders rose an erratic 48 per cent.

However, excluding both defence and transport, orders rose a respectable 2 per cent last month - a sign that recent falls in long-term interest rates have increased demand for durable goods.

Orders for non-defence capital goods, excluding aircraft - seen as a guide to civilian investment trends - rose 1.5 per cent in October, the eighth increase in nine months.

Many forecasters are predicting growth at an annual rate of 4 per cent or higher in the current quarter. But the growth rate is widely expected to moderate early next year because consumer spending has run ahead of personal incomes.

Mr Salman Rushdie, the British author, yesterday met President Bill Clinton in what the White House described as a clear expression of US support for 'someone who has been the victim of a government-legitimised death threat', Jurek Martin writes from Washington.

The meeting, according to US officials, was at the request of Mr Rushdie, who is under a 'fatwah' issued by the late Ayatollah Khomeini of Iran over his book The Satanic Verses - considered blasphemous by Islamic fundamentalists. Afterwards Mr Rushdie said he was 'touched and impressed by his (Mr Clinton's) expressions of support and friendship.'

The White House said he spent about 10 minutes with the president, after longer conversations with Mr Warren Christopher, the secretary of state, and Mr Anthony Lake, the national security adviser.

US policy under Mr Clinton has been increasingly critical of the regime in Tehran, not least because of its alleged sponsorship of terrorism.

Reuter adds: The State Department, in advice issued through the US embassy in Wellington, New Zealand, has warned US citizens abroad to be on the alert for 'terrorist or mob action' following President Clinton's meeting with Mr Rushdie.

The Republican Party's filibuster against gun control broke down yesterday afternoon and the US Senate promptly passed the Brady bill, requiring a five-day waiting period before purchasers can take possession of handguns.

The tortuous saga ended, as such congressional disputes often do, in a compromise. In return for getting a simple voice vote on the bill, the Democrat leadership allowed for additional consideration in the session starting in January of Republican modifications to it.

Nevertheless the Senate action does mean that, with both houses now concurring, the measure can be sent to the White House for President Bill Clinton's signature. The Republican intention next year is to reduce the five-year life of the bill to four years, with the government retaining the option of renewal for an additional year.

In effect Senator Bob Dole, the Republican leader, bowed to growing public heat for some kind of action on gun control in the face of the frightening escalation in violent crime. Senator George Mitchell, his Democratic counterpart, had threatened to call the Senate back into session next week if the filibuster were not broken. Most senators have already left town for the recess.

Passage of the bill constitutes a notable victory after seven long years for Mr James Brady, the White House press secretary severely wounded and left partly paralysed in the attempt on President Ronald Reagan's life in 1981. It also represents a rare defeat for the National Rifle Association, the leading lobby against gun control.

However the limited nature of the bill, requiring that purchasers pass background checks before taking possession of their weapons, does not mean that the NRA has been stripped of its underpinnings. Further initiatives can be expected next year from the administration and others, providing a more serious test of the willingness of Congress to tackle the whole issue.

Mr Michael Manley, the former Jamaican prime minister, has been recruited by Cable & Wireless, the UK telecommunications group, to lead negotiations with the Cuban government about possible C&W involvement in modernising Cuba's telephone network.

The talks signal a further relaxation by the Castro regime in its attitude to foreign investment. Earlier this year it went some way towards legalising use of the dollar in Cuba, and has promised further currency liberalisation.

The Cuban government is believed to be talking to at least two other telecommunications operators besides C&W, including Telefonica, the Spanish state operator which has significant interests in Latin America. No US telecoms company appears to be involved.

C&W, whose interests centre on the UK and past and present UK dependencies, operates in 18 territories across the Caribbean region. It owns 80 per cent of Telecommunications of Jamaica, and has significant operations in Barbados, the Cayman Islands, Bermuda and Trinidad and Tobago.

Mr Manley, who resigned his premiership in March 1992, said he had already visited Cuba on C&W's behalf and had met President Fidel Castro and other leading government officials. He said he told them that C&W had invested heavily in Jamaica to improve the island's telecommunications, concentrating on building networks in rural areas.

Mr John Carrington, C&W's Caribbean director, said talks were at a 'very preliminary' stage, but the company was 'very keen' to operate in Cuba if it could be arranged without offending US sensibilities.

Cuba's state telecommunications company already has a joint venture with a private Mexican company to operate a cellular mobile network. However, the antiquated fixed-line network is a state monopoly, offering lines to only a tiny fraction of the 11m population.

In July the US State Department relaxed restrictions on telecommunications companies seeking to provide phone links to Cuba, letting Cuba receive half of future telephone revenues for international calls.

Demand for telephone links among the Cuban exile community in the US is high. Even before the limited AT&T microwave link with Cuba was destroyed by a hurricane last year, AT&T was able to connect only around 500,000 calls out of 60m attempted each year.

Mr Fernando Henrique Cardoso, Brazil's finance minister, has signalled his withdrawal as a possible candidate in next year's presidential elections by promising to remain as a minister instead.

Finance ministry officials say Mr Cardoso has written to President Itamar Franco saying he will not run in presidential, senatorial or gubernatorial elections next October.

Technically, Mr Cardoso could change his mind before April 2, the deadline for candidates to announce they will run. But analysts said such a reversal would be politically damaging and provide an easy target for opponents.

Mr Cardoso's term as a senator runs out next year and he had been widely seen as a presidential hopeful. As a former academic and foreign minister, he has strong support from foreign investors. However, his intellectualism was seen as a barrier to winning popular support. In opinion polls released at the weekend Mr Cardoso had only 7 per cent support.

His withdrawal from the presidential race should improve the now slight chances of a successful economic reform package being approved before the elections. The government needs congressional support for its 1994 budget, due to be announced later this week, and other structural changes aimed at tackling inflation of close to 2,000 per cent a year. But some important political groups had been opposed to the measures because they feared a successful economic reform would boost Mr Cardoso's election chances.

Mr Cardoso's letter suggests he needs more time to implement the reform measures, which involve spending cuts and are therefore likely to be difficult to implement in an election year.

According to the polls, Mr Luiz Inacio Lula da Silva of the left-wing Workers Party (PT) is the presidential favourite with 31 per cent, while his nearest probable rival is the right-wing mayor of Sao Paulo, Mr Paulo Maluf, with 12 per cent. However, analysts said these ratings could change considerably over the next 11 months.

The Mexican government is to reform the federal labour law in an effort to increase worker productivity.

The new law would scrap the seniority clause that restricts the ability of some companies to promote workers. It would also speed resolution of disputes between management and unions by replacing the current labour conciliation and arbitration panel with more streamlined tribunals.

The president has also sent Congress new laws to allow foreigners to operate trucks and buses in Mexico, and would permit foreign investment in maritime transport. The law also extends the maximum concession for private toll roads to 50 years.

'What we are seeing are the internal changes that are necessary to compete under the North American Free Trade Agreement,' says Mr Mario Dehesa, an economist with Grupo Financiero Serfin. 'We cannot compete with our hands tied behind our backs.'

Mexico's labour arbitration panels can take two years to resolve cases, which is usually not in the interest of either the workers or management. The panels are heavily influenced by the government, which can generally resolve high profile labour disputes as it wishes.

The proposed reforms to the labour law will be sent to Congress before December 15, a senior government official said. They were welcomed by Mexico's business community, which sees the complicated and detailed regulations as an obstacle to productivity. Labour unions are believed to be opposed to some of the changes.

Volkswagen, the German motor group, is expected to finalise revised long-term financial plans for Skoda Auto, the Czech carmaker, within the next week, Reuter reports from Prague.

Skoda said it would visit Volkswagen headquarters in Germany within the next few days to finalise the package. A public announcement was expected soon after the completion of the plan.

VW said in September it would restructure its financial package for Skoda, after abruptly cancelling an Dollars 870m loan. Volkswagen took a 31 per cent share in Skoda when the Czech carmaker was privatised in 1991. VW said then it planned up to DM9bn (Dollars 5.33bn) in capital expansion by the turn of the century, while increasing its stake in Skoda to 70 per cent.

The Portuguese government appears ready to decide in the next few weeks on merging the country's three telecommunications operators into one, leading to partial privatisation.

The sale, provisionally scheduled for some time between December next year and May 1995, would increase to three the number of telecommunications privatisations likely in Europe in the next 18 months. Denmark and the Netherlands plan to float part of their state operators next year.

Portugal is likely to seek bids for a 'strategic partner' for the unified company.

Its telecommunications are currently managed by Telefones de Lisboa e Porto (TLP), which covers communications in Lisbon and Oporto, Telecom Portugal, which handles calls in the rest of the country and connections with Europe, and Marconi Compania Portuguesa de Radio, which deals with intercontinental telecommunications. The state owns 100 per cent of the first two and 51 per cent of the third.

As a prelude to the rationalisation, the government earlier this year formed Comunicacoes Nacionais (CN), a holding company to manage the state's interests in the three companies. CN will first merge TLP and Telecom and then begin negotiations with the private shareholders of Marconi.

Initially, privatisation is expected to be limited to a stake of 30 per cent or less. 'We will hope for as much national investment as possible,' said one source, 'but we will not put up any barriers to international participation in the privatisation operation.'

In a second stage, it is expected that up to 49 per cent will be privatised.

Although Portugal has barely 30 exchange lines per 100 people, financial necessity is not believed to be a driving force. Officials claim that Portugal's telecommunication companies will be 'fully capable' of generating the Es150bn-Es200bn (Dollars 862m-Dollars 1.15bn) a year needed to bring the Portuguese network up to the standard of those in the more advanced European Union states.

Mr Abel Matutes, outgoing European commissioner for energy, said yesterday he supported Norway's request for a protocol attachment to the country's EU accession agreement that would clearly state Norway could continue to have sovereign rights over its oil and gas reserves, should it become a member of the Union.

Following two days of energy negotiations in Oslo with Mr Jens Stoltenberg, Norway's industry and energy minister, Mr Matutes said he would recommend Norway's request be approved by the European Council of Ministers.

Norway, western Europe's biggest oil producer and one of its largest suppliers, is concerned that a draft energy agreement, due to be adopted at a meeting of EU energy ministers on December 10, would force it to relinquish sovereignty over petroleum resources.

'On energy we have made a lot of progress and I have agreed to seek to add a protocol to Norway's membership application which will recognise Norway's full sovereign rights over (oil and gas) resources,' Mr Matutes said, adding that he would recommend the protocol be accepted by Mr Hans Van den Broek, EU commissioner in charge of accession negotiations.

One other leading issue discussed by the two energy officials included that of Statoil's future role and status should Norway become an EU member and the management by Statoil of the state's direct financial interests in oil and gas licences.

'We discussed different models combining Norwegian interests in having strong, effective control but at the same time taking care of equal treatment of all oil companies,' Mr Stoltenberg said.

Norway fears that once the EU's energy directive is adapted, and it becomes an EC member, it would have to change Statoil's structure and the way it is currently managed.

Statoil is automatically given a certain percentage in all oil and gas licences and the state also takes a direct shareholding, which Statoil manages on its behalf. Usually the combined shareholding can reach 50 per cent and often exceeds that amount.

Both men said important progress on energy issues had been made during their talks, but that technical details needed to be agreed before these issues could be resolved. 'We have discussed ways to find technical solutions to political problems,' Mr Stoltenberg said.

The Russian government may cut off gas supplies to Ukraine and impose other economic sanctions to force it to destroy or return the nuclear weapons on its territory to Russia.

Officials in the Russian capital say the pressure will be used 'reluctantly' but add they are determined to use it if Ukraine does not carry out its obligations to return the missiles. Mr Andrei Kozyrev, the Russian foreign minister, said at the weekend that Ukraine was becoming a 'new nuclear power'.

Ukraine's parliament in Kiev ratified the Strategic Arms Reduction Treaty (Start I) treaty last week but, in doing so, proclaimed itself a nuclear state and defined the treaty as applying to only about one-third of the 1,600 missiles it holds.

Mr Leonid Kravchuk, the Ukrainian president, said on Monday that 'Ukraine wants to and will destroy its nuclear weapons'.

At the centre of the issue is Ukraine's demand for money from the west to pay for the destruction of the nuclear stockpile.

The US has proposed Dollars 175m to assist, which Ukraine says is not enough.

Mr Vladimir Kryzhanovsky, the Ukrainian ambassador to Moscow, said yesterday that 'our requests for compensation cause nothing but surprise on Russia's part' and said that the destruction or transfer of the weapons could 'not be speeded up'.

Mr Anton Buteiko, the Ukrainian president's foreign policy adviser, said on Monday that 'the status of Ukraine is unique. This is a new situation - Ukraine is not a nuclear state but owns nuclear weapons.'

Ukraine is, however, highly vulnerable to Russian pressure.

The Ukrainians depend heavily on their neighbour for oil and gas supplies and are already deeply in debt for their extensive energy needs.

An accord between Mr Kravchuk and Mr Boris Yeltsin, the Russian president, on the handing over of nuclear weapons and of Ukraine's half of the Black Sea Fleet to Russia reached earlier this year in the Crimea now seems to be a dead letter.

This has prompted charges from Russia of bad faith on the part of Ukraine.

Spain's conservative opposition party, the Partido Popular, said yesterday that Mr Abel Matutes, the EU energy commissioner, is to leave Brussels early next year to lead the party in the European elections next June, writes Tom Burns in Madrid. Mr Matutes has served on the Commission for the past seven years.

A fellow PP politician, Mr Marcelino Oreja, will take the position, one of two Spanish commissioners.

Mr Yegor Gaidar, Russia's deputy prime minister, yesterday called on the government to apply 'sensible protectionism' to the country's industrialists and entrepreneurs.

Mr Gaidar who led the country's move towards a free market two years ago, said that since prices had been liberalised and the economy opened to imports, Russian companies' demands for protection against foreign competition showed they had adjusted to market conditions.

He denied that he had changed his ultra-liberal views over the past two years to win votes in next month's parliamentary elections. Protection for business has been a popular theme in the election campaign.

'When we freed prices we needed imports because we did not even have any domestic markets', he said yesterday. Russia's circumstances have changed.

Now, the government was happy to respond to pleas from its farmers for an end to grain imports, and from other producers who now realised they had a market to defend.

Import tariffs, which the government has steadily increased since opening up the economy in January last year, were also a useful source of budget revenues, he said: 'We believe that domestic markets should be protected and we can use these tariffs to raise some additional revenues.'

He did not say which imports should be taxed, but added they should not be punitive ones, simply fees to support domestic industry.

At the same time he vowed to resist demands to protect Russian monopoly producers which had no domestic competition. Nor would he isolate the Russian economy from world markets, he said, claiming that Russia's speedy entry to the General Agreement on Tariffs and Trade, would help the country stay its course as an open economy, with access to other markets.

In the past two years, Russian consumers have been flooded with western advertising and goods ranging from chocolate to cars, while Russian producers of similar, if lower quality, goods have been deep in crisis.

While many Russians have welcomed an increased choice of goods - that is those who can afford them - many are offended by the impression that their country is no longer a great industrial power.

The main parties competing with Russia's Choice, the electoral bloc headed by Mr Gaidar, are promising increased support for national producers and protection from western competition to give them time to adjust to market conditions.

The day after Mr Gaidar met leading Russian bankers, President Boris Yeltsin issued a decree limiting the activities of foreign banks in Russia. Yesterday a new list of increased import tariffs was published.

NEW HIGHS (51)

BRITISH FUNDS (1) Treas. 2pc IL '94, AMERICANS (1) Varity, BANKS (1) Ottomane, BLDG MATLS (4) BMSS, Blue Circle, Marley, RMC, CONTG & CONSTRCN (1) NSM, HEALTH & HSEHOLD (1) Lilly (Eli), INV TRUSTS (25) Abtrust Prfd. Zero Pf., Baring Secs. Emrg. Mkts., Exmoor Dual Zero Pf., Fidelity Japan OTC, Do Wts., First Pacific, Five Arrows Chile Fd., Fleming Chinese Inv., Fleming Emrg. Mkts., F & C Emrg. 6 1/2 pc '10, GT Chile Fd. Units, Gartmore Amer. Secs. Zero Pf., Gartmore Value Zero Pf., Genesis Emrg. Mkts., India Fund, Jupiter Euro. Zero Pf., Kleinwort High Inc. Zero Pf., Korea Liberal Wts., Korea-Europe Fd., Malacca Fd., Schroder Korea Fd., Do Wts., Schroder Split Zero Pf., Sphere Zero Pf., Whitbread Inv., MEDIA (2) City of London PR, Flextech, MISC (1) Kershaw (A), OTHER INDLS (1) Amber Ind., PACKG, PAPER & PRINTG (3) Arjo Wiggins Appleton, Cropper (J), De La Rue, STORES (2) Cantors, Sears, TRANSPORT (2) Brit. Airways, Do 9 3/4 pc Cv., SOUTH AFRICANS (1) Anglo Amer. Inds., PLANTATIONS (1) Consld. Plantations, MINES (4).

NEW LOWS (27)

BRITISH FUNDS (3) Exch. 13 1/2 pc '94, Treas. 14 1/2 pc '94, Treas. 14pc '96, BREWERS (3) Macallan-Glenlivet, Merrydown, Taunton Cider, CHEMS (2) Courtaulds, Holliday Chems., CONGLOMERATES (1) Bibby (J), CONTG & CONSTRCN (1) Guardian, ELECTRONICS (1) Vistec, ENG GEN (1) Babcock Intl., FOOD MANUF (2) JLI, Yorkshire, HEALTH & HSEHOLD (1) London Intl., INSCE BROKERS (1) Alex. & Alex., INV TRUSTS (2) Fleming Chinese Wts., Thornton Pan Euro. Wts., MEDIA (1) Blenheim 6.4pc Pf., MISC (2) Black Arrow, Lionheart, MOTORS (1) Select Inds., OTHER INDLS (2) Brown & Tawse, Staveley, PACKG, PAPER & PRINTG (1) Wentworth, STORES (2) Betterware, Pentos.

Data based on those Companies quoted on the London Share Service.

Other statistics, Page 31

Pharmaceuticals group Wellcome saw its share price fall 7 to 623p on turnover of 4.2m, with securities house UBS active in two-way business.

UBS is a buyer of the shares, arguing that they are the cheapest in the pharmaceuticals sector. However, dealers said it also took some sizeable sell orders.

There was little fundamental impetus in the market to sell the shares, but some analysts pointed to an article in the trade press on a rival to Wellcome's anti-Aids treatment Retrovir.

News of the decision to launch an inquiry into the Net Book Agreement hit J. Menzies hard, sending the shares down 13 to 559p. WH Smith 'A' recovered from an initial fall, closing just 2 down at 457p. Pentos slipped 3 to 36p. Dixons, ahead 3 1/2 at 270p, and MFI, up 3 at 140p, were said to be the main rate cut beneficiaries.

Results from Allied-Lyons came in line with expectations and the shares drifted away slightly to close 3 down at 568p. Brewing was again shown to be tough, with the various participants locked in a struggle for market share. Pressure on Allied may prove beneficial to Bass, up 2 at 471p, and Scottish & Newcastle, 3 easier at 469p.

Leisure analysts said the main beneficiary of the base rate cut appeared to be First Leisure, the nightclub and tenpin bowling company. The stock climbed 11 to 245p, with Credit Lyonnais Laing reiterating its buy recommendation.

A sell note from Robert Fleming Securities, focusing on worries about BT's ability to grow the dividend, saw the company's shares sharply underperform the FT-SE 100 Index, closing 5 down at 457 1/2 p after above average turnover of 8.1m. The partly-paid settled the same amount off at 205 1/2 p on turnover of 6.9m.

Dealers said the market had absorbed bouts of selling pressure late on Monday thought to have been triggered by suggestions of a bearish broker note. Most of the selling in the market occurred early yesterday, they added, as institutions took on board Fleming's views that BT's dividend growth looks set to slow over the next three years and that from 1996/97 onwards the probability is that BT's dividend growth will be in low single digits, around 2.5 per cent, with unchanged dividends in poor years.

Mr Laurence Heyworth, Fleming telecoms analyst, pointed out that the recent dividend warning from Iain Vallance, BT's chairman, had caused a slight reduction in market expectations for BT's dividend growth but warned clients that 'we take it more seriously'.

Interim figures from Vodafone, the UK's leading cellular telecoms group, were by no means in excess of general market expectations but were accompanied by a half-point reduction in UK interest rates, a move which transformed the rest of the UK equity market.

Vodafone shares fell back from on overnight 520p to touch 516p at the outset of trading, before embarking on a strong upwards move after the rate cut and the profits and dividend news. They ended 7 ahead at 527p.

Profits of Pounds 74.5m were at the high end of market expectations, while the interim dividend of 4.12p, a rise of 20 per cent, was at the very top of the range and was given a warm reception across the board.

The oil and gas sector was in much better shape yesterday as the market responded to the cut in UK interest rates, which drove the market higher, and hopes that the Opec meeting in Vienna, that commenced yesterday, will see member states agree on a 0.5m barrels a day reduction in overall output to the 24m b/d level.

An agreement on such a reduction is by no means clear cut, but has to be done to stabilise oil prices, said one UK-based oil specialist, who added that the cuts would be achieved 'in bits and pieces across the board'.

Shell Transport attracted keen support, closing 5 up at 686p, ahead of the important presentation to UK oil analysts today. The company addressed US oil analysts last Friday and will face a meeting of Dutch-based specialists on December 2. British Petroleum rose 4 1/2 more to 343 1/2 p as fears of the imminent sale of the Kuwait Investment Office's 9.9 per cent stake continued to subside. Enterprise added 6 at 454p.

International conglomerate Hanson failed to benefit from yesterday's interest rate cut, although the stock is often bought for its yield attractions. The shares held at 277p.

Textiles conglomerate Bodycote International fell 23 to 256p, with dealers saying that Smith New Court had cut its forecasts. Smith was unavailable for comment but Kleinwort Benson Securities said it was also preparing to reduce its earnings estimates.

Exhibitions organiser Blenheim dropped 19 to 323p on critical comment after the group announced a management reshuffle on Monday.

A gloomy message from Northern Foods, accompanying otherwise acceptable results, sent the shares scurrying downwards, although they rallied towards the end of a turbulent session. They closed 4 off at 225p in busy trade of 2.7m.

Food manufacturing analysts said the cautious statement was in keeping with a downbeat post-results meeting, in which the company said that tough price pressures from the first half increased in the second. Downgrades quickly followed, with the market range some 10 per cent lower at Pounds 155m to Pounds 162m.

Disappointment over the dividend payout at Thorn EMI sent the shares tumbling and prompted a series of downgrades and some cautious pronouncements from leisure sector analysts.

First-half results were at the lower end of market forecasts, although there were some bright spots, particularly in the music division. However, the impressive, albeit patchy, results were accompanied by an unchanged dividend, prompting worries over the short term outlook for the stock. One analyst commented: 'The company has sent a very confusing message to investors - reasonable results and a disappointing dividend. People are worried about the near term news flow.'

This includes official inquiries into compact disc prices in the UK and US, potentially harmful legislation in the US over Thorn's rental business and continuing losses at its unwanted defence business.

'Thorn is next year's story,' said Mr Bruce Jones at Smith New Court, who cited flat full year earnings and the looming uncertainties as reasons for marking the shares a hold. They closed a hefty 35 down at 914p, although analysts pointed out that the stock had had a good run. Market forecasts for the year came back to a range of Pounds 338m to Pounds 348m.

The stock market was caught on the wrong foot yesterday morning by the 1/2 percentage point cut to 5.5 per cent in the Bank of England minimum lending rate.

Share prices, which had opened lower in the face of a further setback on Wall Street overnight, spent the rest of the session trading through a range of 40 points on the FT-SE 100 Index, which ended the day not far from its overnight level.

While the overall reception for the interest rate cut, which was swiftly followed by the lending banks, stock market traders admitted to a 'very difficult session.' Genuine retail investors often found problems in trying to deal at wildly fluctuating share quotations as market makers traded between equities and an equally exciteable stock index sector.

The final reading put the FT-SE Index at 3,069.3, down 1.3. The Index was down to 3,050.6 ahead of the interest rate announcement, then soared to 3,090 before falling closing nervously after Wall Street made a poor start to the new session. The FT-SE Mid 250 Index closed 3.8 up at 3,439.2, reversing an early fall.

The uncertain response on the trading screens, which inspired a leap in Seaq volume to 667.1m shares from Monday's 455.2m, contrasted with the more positive reception accorded by market strategists to the base rate cut. On Monday, retail business fell below Pounds 1bn, effectively for the first daily session for several months.

While caught out by the timing of the move, which appeared to have been prompted by trends in London money markets, analysts acclaimed the decision both as a favourable indicator of Budget plans and as confirmation that further reductions in base rates are likely.

'It indicates that London markets have decoupled from the New York Treasury markets,' said Mr Ian Harnett at Strauss Turnbull. He sees UK interest rates at 5 per cent by the year-end. At Kleinwort Benson Securities, Mr Trevor Laugharne was equally positive, believing that although the next half point cut might not come until early January, rates could be down to 4 per next later next year.

By the close of trading, international stocks, including ICI, Glaxo and BAT Industries were not far from overnight levels, but reacting with caution to a Wall Street market then in the process of reversing its opening gain. Oil stocks edged higher, however.

But the domestic, interest-related, stocks traded a more uncertain path. Bank shares, which respond readily to base rate optimism because it lightens their bad debt burdens, moved sharply before closing with mixed changes. Store and retail issues tried to move ahead but failed to hold their best levels.

The favourable attitudes from market analysts were slow to work through to the equity trading desks, where dealers remained unsettled by the outlook for both the Japanese and US stock markets. Throughout the session, UK equities were led by the December contract on the Footsie, and the setback suffered late in the afternoon came when the future fell to a discount.

Yesterday, London had to cope with the absence of a lead from Tokyo overnight and the prospect of a New York market slowing down for the Thanksgiving Day holiday.

Traders said there was a general unwillingness to take on stock positions in the international blue chips which might prove difficult to unravel until next week.

Evidence that the Bank of England and UK chancellor caught London's markets unawares when they announced a cut in base rates was provided by the derivatives markets yesterday, writes Peter John.

The futures contract on the FT-SE 100, which expires on December 17, saw exceptionally heavy turnover of more than 22,000 contracts as dealers raced to adjust their books.

The rush to get back into the market via the futures saw a turnaround of some 60 points between the high and low points of the day.

Worries that US investors were poised to repatriate funds had led to a Europe-wide stock market slide. Dealers expected further weakness yesterday and when the December future opened it traded down more than 20 points to 3,046.

When the half-point cut in base rates was announced, December futures turned round to hit 3,104. Then, profit-taking in the afternoon saw the contract tick back to 3,067 by the official close - exactly where it started in the first place.

At that level it was at a discount to the cash market in contrast to the estimated fair value premium of some 6 points. Although fair value premium takes account of interest rates it will not change as it is calculated on three-month money rather than actual base rates.

Options saw slightly reduced turnover of 47,700 lots, against 50,700 on Monday, with hedge buying of FT-SE puts contributing heavily to turnover of the Footsie options. Land Securities was the most actively traded stock option (2,832 lots) folllowed by Thames Water (2,128).

Wall Street

Supported by a rally in the beleaguered bond market, most US share prices ended the day slightly firmer, although secondary stocks bounced back strongly from recent lows, writes Patrick Harverson in New York.

The Dow Jones Industrial Average finished 3.92 better at 3,674.17. The more broadly based Standard & Poor's 500 improved 1.90 to 461.03, the American SE composite was up 0.16 at 461.04 and the Nasdaq composite recouped 8.69 at 746.82. New York SE trading volume was 261.6m shares.

The stage was set for a positive opening on US stock markets when bond prices rallied in early trading. The benchmark 30-year bond eventually rose more than a point, and its yield dropped to 6.30 per cent. The bond market rally was sparked by several factors, including news of a surprise interest rate cut in the UK by the Bank of England.

Financial markets across the globe have been concerned about rising interest rates, and the BoE's move helped to allay some of those concerns, if only temporarily. With bonds rising and interest rates in Europe declining, US equity investors were in more upbeat mood. Although there was some buying, traders said that business was light, primarily because the markets were already winding down ahead of the long Thanksgiving weekend holiday.

AMR, parent of American Airlines, dropped Dollars 3 to Dollars 65 1/8 on news that the carrier's flight attendants had ended their strike after both sides were pressured by President Clinton to seek a government-mediated settlement.

Investors reacted badly to the news because they feared that the government mediator would force American to dilute its package of cost-cutting measures which analysts had hoped would put the carrier back on the road to long-term profitability.

Other airline issues fell along with AMR, which was also hit by a ratings downgrade from broking houses Bear Stearns and Merrill Lynch. Delta weakened Dollars 1 1/2 to Dollars 57 1/2 , UAL Dollars 2 1/2 to Dollars 136 1/2 and USAir Dollars 3/8 to Dollars 13 3/8 .

Paramount Communications fell Dollars 2 1/2 to Dollars 76 1/2 as investors bet that Viacom, in spite of its lower offer, will defeat QVC Network in the battle to take over the entertainment group. On the American Stock Exchange, Viacom 'A' shares were up Dollars 1/4 at Dollars 47 3/4 and the 'B' stock Dollars 7/8 ahead at Dollars 41 3/4 , while QVC was down Dollars 7/8 at Dollars 48 7/8 on the Nasdaq market.

News of the UK interest rate cut helped ADRs of British companies, notably British Petroleum, which rose Dollars 1 1/4 to Dollars 61 1/8 in heavy volume.

Leading Nasdaq technology stocks were mostly firmer. Intel added Dollars 1 3/8 at Dollars 58 7/8 , Microsoft Dollars 3/8 at Dollars 77 3/8 , Borland International Dollars 7/8 at Dollars 16 5/8 and Apple Dollars 1/2 at Dollars 33.

Canada

Toronto put on a mixed performance in fairly active trading. The TSE 300 index rallied 15.1 to finish at 4,215.3, but declines led rises by 429 to 356 after volume of 61.7m shares valued at CDollars 709m. The pipelines group rose 1.2 per cent.

At first sight, the performance of European chemicals stocks this year has been impressive. Since the beginning of January, BASF's shares have risen 30 per cent, Bayer's 22 per cent and Hoechst's 12 per cent. In the Netherlands, DSM is up 35 per cent. Akzo was up 42 per cent until it announced its merger with Nobel, of Sweden, this month. Even Solvay, of Belgium, is 24 per cent ahead.

But although all chemicals stocks have increased in value this year, most have underperformed their respective local markets. Ms Jackie Ashurst, chemicals analyst at James Capel, reckons it has been the third worst performing sector in Europe this year. Hoechst has underperformed the market by 17 per cent this year, for example. Nevertheless, the chemical sector's underperformance has not been as great as it might have been, given its present predicament.

The continuing rise of chemicals stocks sits oddly with the piteous state of the European chemicals market. While share prices have risen, quarterly results have been progressively more disappointing.

The outlook for next year remains grim. This week, Mr Jurgen Strube, BASF chairman, said his group was likely to cut its dividend again this year and he expected business to remain weak before turning up in 1995.

The reasons for the dire financial performance of Continental chemicals groups are not hard to find. Commodity chemicals are having a rough time. Weakening demand growth and overcapacity have hit prices and undermined margins. Few petrochemicals makers, for example, are making money at the moment.

At the same time, those companies with large pharmaceuticals divisions - normally a good hedge against wickedly cyclical commodity chemicals - have been hit by health care reform in most of Europe's largest countries.

The German market, Europe's largest, has registered a 10 per cent drop over the first nine months of this year, while the Italian sector has suffered a 3 per cent fall.

Such was their decline that the European drugs market recorded no growth during the nine months to September, probably the first time the sector has ever gone ex-growth. Groups such as Hoechst and BASF have warned that their dividends may have to be cut.

The apparently resilient stock market performance of the chemicals groups has been driven partly by fund managers choosing to invest in countries rather than sectors.

Given that the large chemicals groups are so liquid, investors in Germany are likely to build their positions in BASF, Bayer and Hoechst, while those wanting to put money into the Dutch or Belgian markets are likely to pick DSM, Akzo or Solvay.

Fundamentals are also driving the sector. The US recovery, a strong US dollar and falling interest rates have added to its attractions. The stocks' yields also remain high compared with long-term bonds.

The possibility of improved earnings in the medium term is also holding up share prices. At every industry conference and every results meeting, chemicals groups have been warning about the need for restructuring. This is not new. But there seems to be a greater sense of urgency than for many years.

This week, Enichem, the Italian state-owned group, announced 10,000 job losses over the next four years. Earlier this month, BASF announced 3,000 job cuts by the end of 1995. Plant closures are also in the pipeline, aimed at reducing costs as well as capacity. Any improvement in companies' cost-base should fall through to the bottom line, and any cut in capacity should help prices.

Even though corporate results are likely to make grim reading over the next 12 months, the downside to the chemicals market is likely to be limited, says Ms Ashurst. The dangers of missing out on a pre-recovery rally of chemicals stocks are simply too great.

Concern over the potential effect of higher US interest rates on the liquidity in Pacific Rim markets remained a dominant theme in the region. Tokyo was closed for a holiday yesterday.

HONG KONG recorded a sixth consecutive loss amid concern over the direction of US rates. The Hang Seng index fell 134.62 or 1.47 per cent to 9,036.02, having been 247 points lower earlier in the day. The market has fallen by 8.0 per cent since its peak of 8,825.50 points established on Monday last week.

HSBC fell 50 cents to HKDollars 85.00, Henderson Land lost HKDollars 1.75 to HKDollars 33.00 and Jardine Matheson dipped HKDollars 1.00 to HKDollars 67.50.

China-linked shares were also weak. Shanghai Petrochemical fell 12.5 cents to HKDollars 2.50 while China Overseas shed 17.5 cents to HKDollars 2.20 and Maanshan Iron was down 7.5 cents to HKDollars 3.90.

SEOUL tumbled on across-the-board profit-taking with demand for export-oriented issues failing to halt the retreat. The composite index lost 16.68 to 817.90 with 403 of the 755 losing stocks going limit down.

However, analysts noted that underlying market sentiment remained positive, reinforced by optimism over the prospects of economic recovery with provisional Bank of Korea figures showed third quarter GNP grew a higher than expected 6.5 per cent from 3.3 per cent a year earlier.

AUSTRALIA fell steeply on arbitrage in the futures market which drove the December contract down to a discount. The All Ordinaries index lost 39.7 to 2,009.6 in turnover of ADollars 436.6m.

Among the fallers News Corp lost 31 cents to ADollars 9.52, its lowest close since late August. BHP shed 16 cents to ADollars 16.90, Coles Myer lost 12 cents to ADollars 5.12, and Western Mining dropped 21 cents to ADollars 5.50.

SINGAPORE was dragged lower by profit-taking and the Straits Times Industrials index lost 20.03 to 2,076.69 in relatively thin volume of 177.43m shares.

KUALA LUMPUR fell over a broad front leaving the composite index, which breached the psychological 1,000-point level on Monday, down 22.52 or 2.3 per cent, at 966.88.

Losers included the utility giants Tenaga Nasional and Telekom Malaysia which fell 30 and 80 cents respectively to MDollars 15.60 and MDollars 18.50 ringgit. They both account for around 40 percent of the composite index's weighting.

But Lien Hoe rose 26 cents to MDollars 3.80 on takeover rumours in heavy volume of 12.6m shares.

MANILA saw further profit-taking leave the composite index down 29.33 points at 2,388.80. Turnover was to 1.95bn pesos.

Philippine Long Distance Telephone lost 15 pesos to 1,790 pesos and Philippine National Bank shed 10 pesos to 435.

TAIWAN resisted the trend elsewhere in the region but the mood remained cautious ahead of Saturday's local government elections. The weighted index closed 17.81 higher at 4,234.75 in turnover of TDollars 22.6bn.

The electronics sector continued to attract buyers, with Acer finishing up 40 cents at TDollars 32.10.

NEW ZEALAND was broadly lower, while Air New Zealand went against the trend on data showing a rise in October tourist figures, rising 3 cents to NZDollars 2.97. The NZSE-40 capital index fell 28.53 to 2,044.80 in turnover of some NZDollars 54m.

JAKARTA rebounded slightly in late trading but still finished lower overall following falls in blue chip stocks. The composite index fell 13.15 to 523.314.

Barito Pacific Timber, the wood processor and Jakarta's largest stock, ended down Rp900 to Rp12,700 reflecting a sharp fall in plywood prices since August.

BANGKOK recovered slightly in afternoon trading helped by strength in banks. The SET index ended down 4.89 at 1,305.24, after a day's low of 1,271.70, in turnover of Bt12.25bn.

Industrials recouped some early losses but ended the session down 17 at 4,867. The gold and overall indices both shed 29 to 1,944 and 4,224 respectively.

Remgro dropped 75 cents to R29.25, Barlows gained 10 cents to R44.35 and Vaal Reefs fell R6 to R393.

Times Media added R3.50, or 7.9 per cent, to R23 and Loraine lost R1 to R19.50

Poland's new centre left government will be giving 'top priority' to public share offerings to boost the development of the Warsaw Stock Exchange (WSE), writes Christopher Bobinski in Warsaw.

Mr Marek Borowski, deputy premier in charge of the economy, told a conference on 'How to become a publicly quoted company' that the 22 companies quoted on the WSE had better results than state-owned or private companies.

The high turn-out at the conference reflects growing domestic interest in share offers as a way of raising capital in the wake of a continuing 10-month boom on the WSE. This has lifted share prices eight-fold, capitalising the market at around Dollars 1.8bn. WSE regulators estimate that one-third of the trading is done by foreigners, who own 20 per cent of the shares. The WIG indicator rose 5.2 per cent yesterday to 8,680.

A number of separate issues coloured trading yesterday, writes Our Markets Staff.

MILAN was again under pressure early in the session as the lira fell to an all-time low against the D-mark, but the mood subsequently improved after the head of the Democratic Party of the Left reassured investors that turmoil in the financial markets was unjustified after the weekend local elections.

The Comit index finished 14.12 or 2.7 per cent lower at 512.44, reflecing an improvement from the day's lowest levels after Mr Achille Occhetto pledged to back the government until the budget had been approved. Investors were heartened that he also stressed the importance of protecting savings, pushing through privatisations and keeping up the battle against inflation.

Earlier in London, Mr Oliver Kamm and Mr William Cowan of James Capel commented that the equity market had been discounting investor concerns about political instability over the past few weeks and in the short term, investors might focus on the risk to the pace of administrative reform and fiscal consolidation posed by the decline of the centre parties.

However, the macroeconomic and corporate earnings outlook for 1994 appeared favourable, while the support gained by the parties of the far left and far right was unlikely to be replicated in elections for a national government, they said.

The telecommunications stocks were again marked down. Sip fell L56 to L2961 in volume of 27.7m shares and Stet was L9 lower at L3,419 in volume of 14m shares.

FRANKFURT saw a day of contrasts with the DAX index moving between a high of 2,041 and a low of 2,015, before settling off 2.59 at 2,027.41.

Some analysts commented that the market was now waiting for inflation data, due out either today or tomorrow before deciding its next direction.

Mannesmann, which is due to release nine month data today, was down DM1.70 at DM359.00.

Wella went against the trend, rising DM7 to DM835, after it reported a 5 per cent gain in pre-tax profits for the year to September.

PARIS was upset by the profits warning from Elf Aquitaine and the shares of the oil group fell FFr15.80 or 3.5 per cent to FFr416.70.

The CAC-40 index lost 11.14 to 2,071.47, after a high of 2,094 and a low of 2,059, on the last day of the account.

The oil group, which is slated for privatisation next year, said that it expected 1993 profits to fall to around FFr1bn after FFr6.2bn in 1992.

Its Elf Sanofi division went in the opposite direction, rising FFr3 to FFr928, in spite of also reducing its estimates for the full year.

AMSTERDAM remained interested in KLM, the shares rising 30 cents to Fl 37.50, following the collapse of the Alcazar talks and news that the airline would continue to search for ways of reducing costs.

The CBS Tendency index slipped 0.1 to 133.5, after a high of 134.3 and a low of 132.1.

KNP BT, the paper and packaging group, was 20 cents higher at Fl 40.50 ahead of today's results.

ZURICH edged higher, taking its lead from firmer Nestle and Roche shares, and the SMI index added 5.6 to 2,702.1.

Nestle, SFr13 higher at SFr1,170, topped the active list ahead of its autumn news conference today. Alusuisse, with a presentation to analysts this morning, was SFr7 easier at SFr522.

Roche rose SFr40 to SFr5,930 in active trade, recouping some of Monday's SFr140 slide. BBC closed SFr7 lower at SFr1,017 after ABB Asea Brown Boveri said it expected 1993 profits after financial items at the same level as in 1992.

Holderbank eased SFr1 to SFr820 as it sold 200,000 shares to Union Bank, which announced a warrant bond on Holderbank shares with an exercise price of SFr823.

STOCKHOLM was lower in nervous trade amid concern over higher debt market yields and a weaker crown. The Affarsvarlden index fell 11.3 to 1326.1. in turnover of SKr1.98bn.

Asea did better than the overall bourse, its B share falling SKr3 to SKr549 on its nine-month results which proved in line with expectations.

Written and edited by John Pitt and Michael Morgan.

----------------------------------------------------------------------- FT-SE ACTUARIES SHARE INDICES ----------------------------------------------------------------------- Nov. 23 THE EUROPEAN SERIES ----------------------------------------------------------------------- Hourly changes Open 10.30 11.00 12.00 FT-SE Eurotrack 100 1317.74 1321.46 1325.90 1326.35 FT-SE Eurotrack 200 1387.32 1394.54 1397.62 1397.41 ----------------------------------------------------------------------- Hourly changes 13.00 14.00 15.00 Close ----------------------------------------------------------------------- FT-SE Eurotrack 100 1324.69 1327.89 1328.01 1325.47 FT-SE Eurotrack 200 1395.44 1398.73 1398.32 1393.67 ----------------------------------------------------------------------- Nov. 22 Nov. 19 Nov. 18 Nov. 17 Nov. 16 ----------------------------------------------------------------------- FT-SE Eurotrack 100 1331.12 1360.53 1367.52 1363.56 1353.29 FT-SE Eurotrack 200 1396.17 1420.27 1427.61 1423.11 1416.29 ----------------------------------------------------------------------- Base value 1000 (26/10/90) ----------------------------------------------------------------------- High/day: 100 - 1328.96; 200 - 1400.22 Low/day: 100 - 1317.42 200 - 1387.20 -----------------------------------------------------------------------

Europe once again captured the currency market's limelight, with the Italian lira plunging to a new historical low against the D-Mark while sterling rallied on the Bank of England's surprise rate cut, writes Conner Middelmann.

Early in the day, the Bank of England surprised markets by announcing that it was setting its minimum lending rate at 5.5 per cent, signalling a half-point cut in British base lending rates from 6.0 per cent. While the size of the reduction had been largely discounted, the timing came as a surprise, with most expecting a rate cut along with or just after the November 30 Budget.

After the announcement, sterling jumped to a high of DM2.5285 on relief that the cut did not exceed the widely discounted 50 basis points and on hopes that the move would help boost the country's economic recovery. Sterling closed at DM2.5275, up from DM2.5125 on Tuesday.

Few traders expect another reduction around Budget Day, especially since the Treasury press release accompanying the move stated that the cut had taken full account of Chancellor Kenneth Clarke's budgetary measures.

However, many market participants still expect another 1/2 percentage point base rate cut in the next few months in view of encouraging inflation developments and sterling strength following continental European easing.

'Continental European interest rates have substantially further to fall than rates here, and that will continue to lend support to sterling,' said Mr Brian Martin, senior economist at Citibank in London. He is calling for another half-point cut in the base rate in December or early January, and expects sterling to trade in a DM2.50 to DM2.55 range over the next few weeks, 'with a bias to the upside'.

The short sterling December futures contract rose 0.04 point to 94.60.

The Italian lira put on a dramatic performance, slumping to a new record low against the D-Mark on heavy selling at the opening and clawing back some of its losses during the afternoon session.

It hit a low of L1,005 early in the day but recovered in the course of the session on short-covering to finish at L994.5, down from Monday's close of L987.7.

Sunday's municipal elections, where the ruling Christian Democratic party suffered a crushing defeat at the hands of right and left-wing parties, fuelled investor fears over the passage of Italy's 1994 budget and the political outlook ahead of next year's national elections. That prompted a rash of foreign selling, sending bonds, stocks and the currency into a downward spiral.

But some observers said the sell-off has been overdone and should be used as a buying opportunity.

'The markets have lost sight of the structural improvements in the economy, and with Italian assets now cheap, positions should be established in anticipation of outperformance in coming months,' said Mr Keith Edmonds, chief analyst at IBJ International.

Around L1,000, the currency is 'clearly undervalued', he added. Mr Edmonds expects the currency to recover on the back of economic growth against the background of recession-bound Europe and said further gains are likely as investors adjust to the new political groupings.

The D-Mark remained relatively well supported by tightness in the money market and Monday's higher than expected M3 money supply numbers which dampened some traders' hopes for near-term German rate cuts.

In the domestic money market, the rate for overnight interbank funds firmed further as monthly tax outflows continued to drain liquidity and banks' reserves at the Bundesbank dropped again. Some traders also pointed out that continued buying of D-Marks by the Bank of France to shore up its foreign currency reserves was keeping the German money market tight.

By midday, the call rate had firmed to around 6.45 per cent, up from Monday's 6.40 per cent, although the Bundesbank rolled over the Paragraph 17 funds that it had injected on Monday.

The funds - government monies on deposit with the Bundesbank that it can lend to the market to ease liquidity bottlenecks - were offered at a rate of 6.40 per cent, and traders estimated some DM8bn to DM10bn of the funds to be in the system.

Dealers hope that today's allocation of 14-day securities repurchase agreements at a fixed 6.25 per cent will alleviate the shortage, though they caution that large liquidity inflows next week - including public sector salaries bloated by Christmas bonus payments - may mean the Bundesbank will err on the tight side, preferring to rely on Paragraph 17 injections where necessary.

Meanwhile, the dollar drifted lower, testing the downside of its recent range against the D-Mark. Trade is expected to remain thin and erratic ahead of tomorrow's Thanksgiving holiday, with most US traders expected to leave their offices around Wednesday's European close. The dollar closed at DM1.7010, down from DM1.7035 on Monday, and at Y108.50 against the yen, up from Y108.25. In New York it ended at DM1.7010 and Y108.67.

The Finnish central bank lowered its tender rate to 6.88 per cent from 7.09 per cent. The rate, which governs commercial banks' borrowing with the central bank, was last changed on November 16.

-------------------------------------------------- POUND IN NEW YORK -------------------------------------------------- Nov 22 Close Prev. close -------------------------------------------------- Pounds spot 1.4855 1.4755 1 mth 1.4823 1.4722 3 mth 1.4780 1.4678 1 yr 1.4636 1.4536 --------------------------------------------------

There can be little stronger evidence of the spirit of co-operation which infuses Basque industry and finance than the manufacturing groups of the Mondragon Co-operative Corporation.

The MCC has its roots in the work of Father Jose Maria Arizmendiarrietta, the Basque priest who inspired the development of the first of Mondragon's co-operatives, Ulgor, in 1956.

Tucked away high in the mountains of the Guipuzcoa district, the MCC has grown in the past 37 years from being a single manufacturer of white goods into a leading diversified group employing a total of 25,322 people, with total turnover in 1992 of almost Pta4bn.

The MCC, now the most important business group in the Basque Country and ranking 15th in the whole of Spain, boasts some 90 separate companies, according to Mr Javier Mongelos, president of the MCC's general council, its governing body.

Of its three divisions - financial, industrial and distributive - the industrial arm is by far the most important. Its manufacturing base includes machine tools, automotive components, electronics, construction parts and domestic appliances of all kinds.

In 1992 the industrial division achieved a turnover of more than Pta2bn, 25.5 per cent of which was in exports, an increase of just 1 per cent over 1991. Given that industrial output was down by 1.7 per cent in Spain overall, and by 4.1 per cent in the Basque Country in 1992 against 1991 - as a result of the international recession - that performance must be seen as impressive.

In Spain overall, the machine tool sector saw a 20 per cent drop in production in 1992, compared with 1991. Yet MCC machine tool exports actually increased by 1.6 per cent in 1992, compared with a 14 per cent drop in this export market for Spanish machine tool manufacturers generally.

But Mr Mongelos hopes that the recession may be passing its peak. He believes 1993 may see the industrial division's exports grow by an average of 15 per cent compared with 1992, while its production overall will be about 3 per cent greater than in 1992. He thinks total turnover for the whole corporation could reach Pta5bn for 1993.

Mr Mongelos says that the organisation has gone through a lengthy and continuing process of 'reconstruction and elaboration of its future strategy.'

Spain's EU membership has meant that the previously protected market for much of the MCC's products has disappeared.

'The competition is no longer with other Spanish manufacturers but with Siemens-Bosch, Electrolux and so on; companies which are perfectly capable of operating in a global market,' says Mr Mongelos.

The immediate difficulty, not just for the MCC but for Spain in general, according to Mr Mongelos, is one of catching up with the past.

'It's impossible for a country or an industry which was isolated for 50 years from international competition to adapt itself to complete world competition in 6 1/2 years. This metamorphosis, done in such a short time, has also not been accompanied by other transformations which are necessary for a truly competitive environment.

'Of course, here in the Basque Country we have certain advantages, particularly in the Mondragon Corporation, because the benefits or otherwise of productivity go directly to the person who works; the owner of the company is the same as the person who has to work there.'

In other words, the Mondragon enterprises have the advantage of flexibility, of being able to change according to the needs and pressures of the markets, without having to engage the massive bureaucracies of Spain's employment laws and trades union opposition.

According to Mr Mongelos, the MCC's co-operative nature means that people behave reasonably because they are all kept well informed about the ups and downs of their own enterprise.

'We don't have strikes, for example. When there is a problem then a general assembly is organised to sort it out.'

At the same time, unemployment within the MCC is almost non-existent. Unemployment is defined as more than 100 hours a month without work - a working month has 170 hours - and the unemployment figure within the corporation is now about 200 people.

'The Basque Country is a poor country, without its own natural resources. We have to import everything. It's also a country which traditionally has seen a lot of emigration, to other parts of Spain and other countries. Life has normally been very hard for the people who live here, and the only way they could get out of that hardship has been to work. The co-operatives grew out of this culture of poverty, of difficulty,' explains Mr Mongelos.

'The future for the corporation must be one of further adaptation to this new world of international competition; one in which all the protective measures which existed either have disappeared or are disappearing. One of the implications of that is that the small and medium companies, which have worked well here in the past, will not do so in the future in Europe. They don't have the financial, or research and development capacities to compete.

'But it is also necessary to alter our customs, our management practices and our attitudes - and that's a very complicated business,' adds Mr Mongelos.

Economically speaking, what is good for Spain is better for the Basque Country and the reverse is just as true. With the Spanish economy now entering its second year of recession, the Basque economic indicators look worse than they do elsewhere in the country.

The third-quarter 1993 report issued by Bilbao's business think tank, the Circulo de Empresarios Vascos, sombrely notes that there is no sign of any brakes to arrest the falling industrial demand and, much less, of recession bottoming out. It concludes that recovery in the Basque Country will be 'more complicated' than in other areas of Spain.

The industrial activity index for the Basque Country in May, the latest available statistic, fell by 4.7 per cent which was in line with the negative growth recorded for the past two years and the year-on-year fall in industrial activity stood at the end of that month at 10.1 per cent.

A breakdown of the Basque Country's recession data gives worrying statistics. The steel sector, which accounts for 44 per cent of the area's industrial activity, fell by 10.9 per cent in May to give a 12-month drop of 16.3 per cent. Bilbao's estuary, once the pulsating hub of heavy Spanish industry, is now an industrial wasteland, arguably darker and more satanic than anywhere in the developed world.

'Before people used to talk about profits and investments and now when you get two businessmen together they will swap stories about how they are reducing their payroll,' says Mr Jose Miguel de la Rica, chairman of the Circulo think tank. Profits, when they exist at all, are uniformly down and the investment is ploughed into paying off redundancies.

The labour shakeout is aimed principally at containing losses and not at improving productivity. Companies are offering early retirement to those aged 55 and they are sacking those under 30 who are mostly employed under temporary contracts and are cheaper to dismiss.

Unemployment stood at 23.2 per cent of the Basque Country's active working population in the second term of this year, according to the Madrid-based Statistics Institute's labour survey. This figure, which gave a jobless total for the area of 201,240, was marginally above the national average; it was a shocking set of data for what was once, scarcely 20 years ago, a full employment area.

The Basque Country's economy is the victim of deceptive successes in the past when it used to draw cheap labour from the rest of Spain to transform steel and to manufacture ships and capital goods for the protected Spanish market. It caught pneumonia when it was blasted by the cold winds of competition.

'We were stripped naked when we entered the European Community,' says Mr Jose Maria Gorordo, a former mayor of Bilbao and now the chief executive of the city's Chamber of Commerce. 'We would have been better off if we had been left with our old clothes.'

The Basque Country's problem was that its old clothes, its obsolete heavy industry built around the Altos Hornos de Vizcaya steel plant, was exactly what Brussels had no use for.

Cut-backs imposed by Europe were exacerbated by domestic difficulties, chiefly the over-valued peseta of the 1980s and the high interest rates that kept the currency high. These factors, coupled to industrial disputes and soaring wage rises, turned meaningful restructuring and diversification into an endless obstacle course for the top Basque companies.

Small companies, the area's pride and joy, have scarcely fared better. Specific sectors, such as car components, are flat and overall they face the toughest competition possible. 'We are on the frontline of the south-east Asia challenge,' Mr de la Rica observes with a shrug.

There are examples of the challenge being met. Employees of a local plant that manufactures sewing machines and was being undercut by a Taiwan rival were faced with the stark choice of earning less or producing more. They chose to work a six-day week. A recurring positive theme in all presentations of the local economy is that the Basques constitute one of the most industrious labour forces around.

The second asset is the drive of its business community. When a 40-strong team of Basque entrepreneurs went to Cuba recently one of them travelled with pots of paint and a fistful of brushes which he personally used to spruce up a hairpin-producing plant that he had opened a year earlier in Havana.

'That's the mettle we are made of,' says Mr Marcos Vizcaya, an official of the ruling PNV party who has known the hairpin manufacturer since childhood.

Such enterprise can, however, stumble over the absence of capitalisation. Because of terrorism, as well as the often violent industrial relations environment, foreign investment has mostly given the Basque Country a wide berth and there has been an equivalent shortage of Spain-based funds.

As a result, capital raising has often to be done within the Basque community and the Basque Country is fortunate to have in its midst far-seeing venture backers in the local savings banks and in Banco Bilbao Vizcaya which has an umbrella industrial holding, the IBV corporation, which it shares with the electrical utility Iberdrola.

Despite the recession and the internal problems, the presence of such financial resources means there are a number of brights lights pointing to an economic future for the Basque Country.

CAF, a railway rolling stock manufacturer that has its main plant in Beasain, broke even in 1991 after many years of losses and turned in net profits of Pta1.5bn last year which it put aside for reserves. The company, which is 25 per cent owned by the three Basque savings banks, currently has an order book worth Pta77.7bn - 35 per cent of which has been earned outside Spain.

A second clear example that all is far from lost in the Basque Country is Gamesa, a Vitoria-based weapons producer that has branched out into new materials, microelectronics and environmental engineering, now earns 50 per cent of its revenues outside Spain and is one of the most successful ventures backed by IBV.

Even in the steel industry, the foundation of the Basque Country's past wealth, there are companies that have specialised intelligently, have begun to export aggressively and are making money. The top trio in this all-important sector are Aristrain which makes long products, Guivart which produces steel bars, and Tubos Reunidos which manufactures seamless pipes.

It will nevertheless take a while yet before the once finely-tuned engine of the Basque economy begins to climb into the higher gears.

About eight miles outside Bilbao and just a stone's throw from the city's airport lies the Zamudio technology park, occupying 320 acres of beautiful countryside. 'But the technology park is not just a collection of nice decorations, pretty furniture and pleasant fields,' says Mr Juan Martin, one of the park's senior managers, 'Its soul is the 'software'; the quality of the people who work here.'

In many respects, industry in the Basque Country is in a transitory phase, with the Zamudio park and other high-tech developments indicating what the future could be like; a shift from the old traditional metal-bashing industries to electronics, bio-technology, and communications.

Zamudio's 37 companies are mostly small-scale, 25 of them employing fewer than 20 people each. But there is every chance that from these acorns some strong oaks will grow.

The reason for that confidence is the unique strain of proud Basque self-identity which in commercial spheres becomes interfused with an attitude of mutual co-operation.

The Basque Country's former predominance in industrial production within Spain overall is vulnerable as a result of recession and overseas competition. But it still accounts for 6.2 per cent of Spain's gross domestic product and 10.7 per cent of Spanish exports, although the region has just 5.4 per cent of the Spanish population.

Another factor which benefits Basque industry is the massive level of government subsidy and services support. The creation of an office of strategic investments in the Basque government in November 1992, with a determination to generate more than 8,000 jobs through targeted investments totalling Pta33bn, under the so-called Garapen Plan, is a clear indication of Basque government determination to shelter local industry against the worst excesses of international competition and recession.

That extends to stepping in where the banking system is reluctant or unable to tread. SPRI (Sociedad para la Promocion y Reconversion Industrial, or the society for industrial promotion and reconversion) is the Basque Country's development agency, created in 1991 and 91.4 per cent owned by the Basque government's economy ministry.

SPRI provides loans at 4 or 5 per cent interest - several points lower than present bank rates in Spain - for up to 70 per cent of total investment. According to the president of SPRI, Mr Jon Azua, industrial production fell by 4.5 per cent in 1992 compared with 1991, with the loss of 20,000 jobs. Production of industrial plant goods fell by 10.8 per cent.

SPRI's role is to try to staunch that kind of haemorrhage by providing a plethora of action plans, investments, studies, subsidies and cheap loans in an attempt to strengthen regional business and also attract foreign companies to set up in the Basque Country. SPRI will provide up to Pta1.2m per job created in subsidy to participating companies which guarantee the creation of a minimum of 50 jobs and invest at least Pta500m of their own. For companies which create between 50 and 500 jobs, with investments of between Pta500m and Pta4bn, it will subsidise up to 40 per cent of the investment.

SPRI can also arrange tax exemptions for up to 45 per cent of new investments for existing companies and up to 100 per cent of corporation tax for new companies for a period of 10 years. It will subsidise up to 58 per cent of qualifying research and development programmes and up to 100 per cent of training plans. And to encourage foreign investment, SPRI has set up outposts in nine other nations, including the US and Japan.

But the spirit of mutual assistance does not stop with government support. Elkargi, founded in 1980 and with 639 member companies in 1981, is now an association of more than 6,000 Basque companies. Elkargi's main purpose is to take financial risks which large commercial banks are unhappy with, by acting as a guarantor of loans made by the banks to small and medium sized companies.

From guaranteed loans of Pta633m in 1981, the association in 1992 provided guarantees for Pta9.8bn, with a bad debt rate of 1.45 per cent of all guarantees made.

What of the immediate future? For Mr Jose Urchegui, general secretary of Adegi, the employers' association of the Gipuizcoa, with 1,600 member companies representing 60,000 employees, the urgent need is to increase within the Basque country's companies a sense of the importance of thinking not just nationally but globally - and to ensure that tomorrow's employees have received the best training possible.

To that end Adegi has been instrumental in a highly innovative educational-training scheme called the Machine-Tool Institute, sited at Elgoibar, some 55 kilometres from Bilbao. The institute - funded entirely by local companies - takes school-leavers from throughout Spain and provides them with a sophisticated apprenticeship in advanced machine-tool technology, as well as language courses and business administration training. It has some 400 students but by running courses of different lengths it reckons on about 1,000 students - full time and day release - passing through its doors each year.

The institute's core aim is to ensure that the students receive hands-on training on the very latest equipment, thus maintaining the Basque Country's traditional strengths in machine-tools. Fifty per cent of Spain's machine tool production is exported, two-thirds of that to industrially developed countries such as the US, France and Germany, according to Mr Alberto Ortueta, general manager of the Spanish machine tool manufacturers' association. 'We don't have much in the way of natural resources in the Basque Country - we don't have minerals or mining. Our basic asset here is the human being,' says Mr Urchegui.

'What we are doing here is to try to make sure that professional training is not just a matter for the schoolroom but is also something which companies occupy themselves with.

The Machine-Tool Institute is an experiment, the result of an agreement between the business sector and the Basque government. There are companies here which need particular types of trained staff yet cannot find them amongst school-leavers.'

The Basque Country needs restful political consensus and then a restorative sense of common political purpose like an all-night reveller needs 12 hours sleep and a strong pick-me-up. Unfortunately it has neither such balms.

Politics in the Basque Country are criss-crossed by demarcation lines that have historically fractured the area's political framework and created a plethora of tribal groupings. Superimposed on the classic division between left and right is the confrontation between the nationalists and the non-nationalists.

The nationalist camp itself is divided between those who support violence and those who oppose it and the latter are themselves split between those who settle for home-rule autonomy and those whose final aim is independence.

The area's two main political parties, the Partido Nacionalista Vasco (PNV), and Partido Socialista de Euskadi (PSE), the Basque subsidiary of prime minister Felipe Gonzalez's ruling socialist party in Madrid, share just under 50 per cent of the Basque vote between them and form a PNV-led coalition government in which mutual suspicions abound.

Were the PNV and the PSE marriage partners, each would sue the other for divorce on the grounds of mental cruelty for they could hardly be less suited as a couple. The PNV is nationalist, sentimentally rural, conservative and Roman Catholic; the PSE derides ethnic politics, prides itself on its trade union origins in Bilbao's industrial belt and styles itself as modern, progressive and emphatically secular.

Mr Ramon Jauregui, the Basque socialist leader, admits that 'a certain amount of expectation' envelops the local political scene. When, in Madrid recently, Mr Gonzalez opened talks with the main national opposition party, the centre-right Partido Popular (PP), the PNV behaved as if it were a scorned bride. Do the socialists think, asked the nationalist leader Mr Xavier Arzallus, that the PNV is 'a concubine who can be trifled with?'

The PNV, which holds 10 portfolios in the 16-member Basque government including that of chief executive, is to a great extent in a quandary of its own making. It was invited by Mr Gonzalez to join the national government in Madrid as a junior coalition partner after the general elections last June left the prime minister short of an absolute majority. But it rejected the invitation and now it appears to wish it had not done so.

Somewhere between the invitation and its rejection, the PNV seemed to have peered over its nationalist shoulder and lost its nerve; the very idea of propping up a Madrid government filled it with dread. It was fearful of losing its nationalist credentials to the radical Herri Batasuna (HB), the coalition which supports Eta and, more plausibly, of handing over votes to Euska Alkartasuna (EA), a minority party lead by former, and more uncompromisingly nationalist, PNV members.

The PNV's hesitancy had a lot to do with the staging of local Basque elections which are due in October next year. Unlike the PSE, which appeals basically to non-nationalists, Mr Arzallus' PNV has to contend with splinter groups such as EA and with solid formations, such as HB - the third-biggest political party in the Basque Country - that dispute the strictly nationalist constituency.

Negotiations to join Mr Gonzalez's government broke down when the PNV tabled a long agenda - the final list totalled 54 separate chapters - of home rule prerogatives that it demanded be urgently transferred from the Madrid administration to the Basque government. That was the price that the nationalists set for co-operation with Madrid and Mr Gonzalez judged it far too expensive.

Certain PNV home rule demands - which deal, for example, with jurisdiction over vocational training - can be granted immediately, because the Basque government already runs its own education department. Others, including transfer to the Basque Country of responsibility for health and social security and for unemployment benefits, involve costly and complex administrative adjustments.

A third chapter of devolutionary demands that seek to establish local control over airports and harbours in the Basque Country fall into a grey area in which it is not constitutionally clear where the prerogatives of Madrid end and those of the autonomous governments begin.

A final shot of self-rule ambitions came in the form of a demand for a Basque central bank, a monetary institution that would supervise and regulate the local financial sector and which would clearly undermine the responsibilities of the Bank of Spain. The adamant opposition of the PSE to this pretension has further soured the relationship between the coalition partners.

In the delicate negotiating process that followed the June 6 general elections and which led to the ultimate formation of a minority government by Mr Gonzalez, the PNV played for high stakes and it lost. Now it is in the uncomfortable position of being stuck with the socialists in the autonomous Basque government and being unable to play any meaningful role in the socialist-run central government.

for the mainstream Basque nationalists because the Catalan nationalists, who are the PNV's clone party on the periphery of Spanish politics, proved themselves infinitely better negotiators. The Catalans also rejected overtures to join Mr Gonzalez's government but they have cunningly supported the Madrid government's draft budget, influenced much of the blueprint's proposals and, as a result, ensured fiscal benefits for their Catalonia stamping ground.

The PNV's obduracy earns it a bad press in Madrid whereas the suave Catalan practise of the art of the possible is hailed as statesmanlike. The problems facing Mr Arzallus' PNV are not, however, at all easy.

The Basque Country's mainstream nationalists do not have the ascendancy in their home base that their Catalan counterparts enjoy and, unlike Catalonia, the Basque Country has a federal-type administration in which power is shared between the Basque government and the county councils of the three provinces that make up the Basque Autonomous Community.

Consensus politics has never been the PNV's strong point but its brinkmanship tactics have failed and its options are now running out. Concessions have to take the place of confrontations and the wintery realities of economic recession should cool nationalist ardours and shelve devolution agendas for the time being.

The likelihood is that elections next year to the 75-member Basque parliament will once more return the PNV and the PSE as the main parties but will again leave the two of them well short of a majority, thus forcing them into a renewed coalition. What the Basque Country cannot risk is a continuation of the present suspicion-fraught alliance.

What sets the Basque Country apart from any other corner of the European Union except Northern Ireland is that it has a terrorist problem.

Eta, an acronym for Euskadi Ta Askatasuna, Basque fatherland and liberty, has been shooting, bombing and kidnapping for the better part of 25 years and is directly responsible for more than 800 deaths.

Political violence in the Basque Country is on a lesser scale than it is in Northern Ireland and there are no troops patrolling the streets of Bilbao in order to keep warring terrorists, as in Belfast, apart from each other.

Basque violence is not sectarian; moderate Basques, who constitute a large political majority, find common cause with the security services against the radicals and the gunmen.

The qualitative difference is, however, of little comfort to those who work and invest in the Basque Country. Businessmen employ private security guards as a matter of course and they live in dread of an extortion racket known as the revolutionary tax.

Political violence has deterred investment and prompted plants to close and transfer their business out of the Basque Country.

There are two main, and interconnected, points to be made about the violence factor:

it is on the wane although it remains lethal and will continue to exist for the foreseeable future;

it has become an internal Basque problem as opposed to one between Madrid and the Basque Country.

'The situation is better than it used to be and the Basque government is making an enormous effort to give the impression that this is all being normalised,' says Mr Jose Miguel de la Rica, president of the the business pressure group Circulo de Empresarios Vascos. 'But then you get a murder or a kidnap and then everything goes to the devil.'

In June, seven military officers were killed by a car bomb in Madrid and in October two Eta gunmen shot an air force general dead outside his Madrid home. A sure sign of Eta's continued muscle came with the release last month of a Basque businessman who had been kidnapped in July, following the alleged payment of a Pta300m ransom.

The violence continues despite suggestions that the police are gaining the upper hand. In recent months revolutionary tax rings have been broken up, gunmen arrested and arms caches seized. Although Eta is regularly reported to be out for the count - some 500 of its members, including more than a dozen of the group's more notorious leaders, are in prison - it appears, time and again, to pick itself off the canvas.

'The strategy is the right one but the process is long and slow,' says Mr Ramon Jauregui, the Basque Country's socialist leader who has a long experience of the terrorist issue. 'We have to be very careful in order to maintain the initiative.'

The initiative was nearly lost in September when the deaths of two Eta suspects while in police custody served to bring underlying tensions to the surface and prompted wide-scale rioting.

Few fault the Madrid government, the local Basque government and the police forces of the two administrations over the way they go about their business. The strategy involves close co-operation between them and also with the French government and its security services. France has been acting energetically for some years now against refugee gunmen across the Spanish border and the one-time Eta safe havens in south-west France had been effectively neutralised.

The prison policy is an intelligent one. Under a new strategy, Eta members have been transferred from two maximum security jails where the hardliners ran highly regimented communes. Thery have been dispersed among more than 20 prisons where they share cells with common criminals.

The key consequence of the dispersal policy is that jailed terrorists who have no stomach left for the fight and are relieved of the commune pressures are able to apply for individual pardons. 'We can only afford to give such amnesties drop by drop,' warns Mr Jauregui.

The main reassuring feature of the strategy is that a grassroots movement is gathering force in the Basque Country that publicly rejects Eta's violence. That Basques are now willing to stand up and be counted reflects the groundswell of opinion that sees continued violence as futile as well as profoundly damaging to the local economy.

This grassroots rejection was boosted by the long kidnap endured by Mr Julio Iglesias Zamora, whose family-owned San Sebastian engineering company had failed to pay the gunmen's revolutionary tax. Thousands of Basques wore blue ribbons to show their support for Eta's victim and numerous well-attended rallies were staged to demand his release.

The protest movement was quite unprecedented but it fell short of its objectives: Mr Iglesias Zamora was released last month only after Eta had extracted the ransom and the police failed dismally to trap the kidnappers. Moderate Basques feel, however, that it was not in vain.

'A short while ago nobody talked out against Eta and now they do,' said an official in the ruling Partido Nacionalista Vasco (PNV). One sign of changed times is the manner that members of Herri Batasuna (HB), Eta's political front organisation, have been forced to stop going to a restaurant they used to patronise near their Bilbao headquarters.

At the height of the kidnap saga and of the blue ribbon movement, the restaurant's management decided to stop serving the radicals after other clients began to go elsewhere. In the tight world of Basque politics, where everybody knows everybody else, the restaurant boycott was hailed as a victory over the tyranny of violence and the story of HB stalwarts sending out for sandwiches is gleefully retold.

In the final analysis, Basques seem to have woken up to the fact that Eta is their problem and that its solution lies with them. It is no longer a side show involving headstrong members of their community and the Madrid security forces.

The lesson is sinking in that the endemic political violence is making the burden of recession in the Basque Country much harder to bear. Eta's revolutionary rhetoric is out of touch with the times and its Freedom-for-the-Basque-Country platform is at odds with the area's now well-consolidated home rule.

Throughout the Basque Country, Madrid-based security forces are being withdrawn and their place taken by the Ertzaina, the police force that is recruited, trained and paid for by the local Basque government. Increasingly, it is the Ertzaina which is leading the baton charges to break up pro-Eta rioters and which is claiming counter-terrorist breakthroughs, particularly on Eta's extortion racket.

Mr Juan Maria Atutxa, the Basque government minister who is responsible for security and the chief of the Ertzaina, has taken a tough line against the radicals. This has made him the most popular politician for the majority of the Basque population and also the target of an HB hate campaign.

Posters and graffiti that term Mr Atutxa 'traitor' have replaced those that used to accuse Madrid's Interior minister of 'genocide'.

In itself this is a telling development that underlines how Eta violence has become an internal Basque issue which the Basque government is determined to address. Mr Atutxa, who is a member of the PNV, is as Basque as it is possible to be - he was born in a rural hamlet, spoke Euskera, the Basque language, from birth and has been an ardent nationalist all his life.

No less indicative of the new climate is the manner in which members of Mr Atutxa's Ertzaina who are posted to strong pro-Eta areas, particularly in San Sebastian's Guipuzcoa province, have been known to suffer the same hostility and pressures that the Madrid-based Civil Guard used to endure: their car tyres are punctured, their wives are refused service by radical-minded shopkeepers and their children are abused in the local schools.

The polarisation of Basque society over Eta is an uncomfortable step but it is nonetheless one in the right direction. Eta will only be curbed when its supporters realise that they are not taking on Spaniards and Madrid but their own neighbours in their own backyard.

Fishing is much more than an industry or pastime in the Basque Country. And consuming fish is much more than a means of satisfying hunger.

For a Basque, catching a fish is more of a historical right, an assertion of culture. To prepare and eat a fish is more the culinary equivalent of high art than mere cooking.

But, as with many other aspects of Basque life, the impact of Spain's membership of the European Union is being felt in this most traditional of Basque activities. The region's fishing industry has been forced to curtail its operations, as has the fishing industry in the rest of Spain. But for the Basque Country, with unemployment levels officially approaching the 30 per cent mark, any contraction of such a traditional industry is bound to have serious economic and social consequences.

Spaniards on average eat 43kg of fish annually; more than the citizens of most other EU member states. In overall terms, the fishing industry has historically diminished in its importance to the Basque Country's economy to the point where it now contributes not more than 1 per cent of gross domestic product.

'However, there are coastal areas where the population depends almost entirely on fishing, populations where if fishing disappeared then so too would the population,' says Mr Jose Ignacio Espell, deputy director of fishing in the Basque regional government, based in Vitoria. 'They are places where fishing contributes more than 25 per cent of the local GDP.'

The most immediately visible impact of the EU on the Basque Country's fishing industry has been the reduction in the number of fishing vessels; down from 748 in 1984 to about 560 now. Basque fishing boats represent about 3 per cent of the total Spanish fishing fleet. The diminution is a direct result of EU-imposed quotas.

'In the 1970s, there were 200 fishing vessels from the port of Pasajes alone that fished in EU waters. Today, there remain just 38. The cod fishing fleet of Pasajes, which fishes in Canadian waters, had 100 ships. Now there are 24. So the EU decisions about quotas and shipping numbers were, for us, very bad,' says Mr Espell.

Spain overall had 19,451 fishing vessels, the largest such fleet in the EU, at the end of January 1992.

But besides the limits imposed on the number of vessels, the EU implemented other restrictions too; on what types of fish the vessels could catch and on where they might seek shoals of fish.

'They (Brussels) put us in a corset,' says Mr Espell. 'But at least we have one good thing: fishermen - people who know how to fish] Basque fishermen have managed to find jobs elsewhere, for example in the French fleets.'

Mr Espell is critical of the way in which the EU has handled his country's fishing fleet, but at the same time he exudes the kind of Basque pragmatism that has sustained the region through many difficult political and economic times.

'I always say the same thing. We have been very pressured, with enormous restrictions placed on us. I say that we do not ask for advantages, but nor do we want to be discriminated against. And I think the EU has understood that, because it now speaks of a single-speed European fishing policy.

'Right now there has been a two-speed policy: that of the other 10, and that of the two, Spain and Portugal. From 1996 there will be a single-speed policy, for all,' says Mr Espell.

From 1996 what Mr Espell describes as the EU's 'discrimination' against Spain and Portugal will disappear, 'because once Norway enters the EU it will be absurd for there to be three different fishing policies: a third one for Norway.'

Despite his objections to EU policy so far, Mr Espell nevertheless believes that it is far better to be inside the EU than outside, since non-EU members will, he believes, progressively find their own fish exports more discriminated against in the future.

The EU is re-writing the regulations for Spanish and Portuguese fishing, and is due to produce a new policy for the two countries by January 1 1994 to be implemented two years later.

According to Mr Espell, the new policy will 'mean that the two can fish on the same basis as the other 10 EU members.'

But that will not mean growth in the Basque Country's fishing industry, or that of Spain as a whole, thinks Mr Espell. 'At the moment the fishing policy of the EU says that it is necessary to adapt the fleet to the fish resources. We are all conscious of the need to do that, and so there is no way we will increase the size of our fishing fleet. What it does mean, however, is that we will be able to renovate our old fleets and improve them, though not increase their size. We will just be able to fish on equal terms with the rest of the EU.'

There still remains the problem of imports to the EU from non-EU members. 'This has done a great deal of damage to all the EU fleets, including ours,' says Mr Espell. 'For me it represents a kind of social dumping. Under EU regulations we must pay minimum salaries and guarantee other kinds of benefits, but certain non-EU countries don't have those kinds of rules. That allows them to sell their fish at a fifth of the price.

'I want to compete, but I cannot compete on that basis.'

The Basque Country has some of the worst slums and some of the most unspoilt, richly forested valleys in western Europe. It embraces wholly obsolete industrial plants and greenfield sites devoted to technological innovation. It has been hit harder by recession than anywhere else in Spain and yet it is the home of an energetic business community and the headquarters of top national corporations.

Politically, the Basque Country suggests just as many contrasts and contradictions as it does socially and economically. It is governed by a coalition formed by two rival parties who have agreed on a joint programme. The partnership is, nevertheless, an uneasy one and the political climate swings from confrontation to consensus with extraordinary ease.

Broadly speaking, the Basques are wholly integrated because they are legendary 'joiners'; they group together in a myriad institutions, from sporting clubs to dining societies and associations of mushroom pickers. But terrorist violence has cast a long shadow over Basque society and deeply divides it.

Out of a population of just over 2m, some 500 members of the Basque separatist organisation Eta are presently in prison. Probably twice as many associates of the terrorist organisation live abroad, and the number of Basques who over the years have been detained or jailed in connection with terrorism must run into five figures.

Everybody in the Basque Country has first-hand knowledge of Eta; many live in threat of its racketeering. While there is a fearful, silent majority, increasing numbers are speaking out against the terrorists.

Many Basques support Eta's violent struggle for independence, however. Herri Batasuna, (People's Unity), the radical coalition which backs the gunmen, gained 174,000 votes in June's general elections; some 50,000 more than in the 1989 poll, although its share of the total vote slipped from 17 per cent to 15 per cent. Political stability in the Basque Country ultimately depends on a negotiated solution to the Eta problem.

Politically, socially and economically the Basque Country is at a cross-roads. Obsessively rooted in its Basque identity, an exclusive, ethnic identity in its more extreme manifestations, and excessively dependent on its steel-manufacturing sector, it now faces the challenge of recognising its own pluralism and of diversifying its economy.

The deep love and respect for the Basque Country's special nature; for its language, its culture and its traditions, which so many in the area share, should not become a tribal battle call to arms that sets off one section of the community against the other.

Blessed with excellent communications, the best cuisine in Spain and, in San Sebastian, arguably the finest seaside resort city in Europe, the Basque Country has much to gain from opening itself out to others, not least to foreign tourists.

With its industrial tradition and its highly-skilled labour force, the area has even more to gain from outside investment - investment that at the turn of the century formed the core of the Basque Country's industrial muscle. But there will be no meaningful foreign takers for the local opportunities while the often irascible and sometimes violent Basque nationalist climate persists.

The Basque Country's arrival at a cross-roads is timely in as much as Spain itself, on the political and economic level, faces a watershed of its own.

The general elections last June left Mr Felipe Gonzalez, the prime minister, short of an overall majority and his minority government has been forced to seek alliances with nationalist parties, notably with the Basques.

The economic recession has, meanwhile, prompted the government into overhauling the labour market rigidities that have in no small way contributed to the decreasing competitiveness of Basque industry

The twin issues of a new political arrangement, involving a form of cohabitation with the nationalists, and of deregulation, involving a loss of trade union power, can - if they are properly addressed - help the Basque Country a great deal as it seeks a sure route towards recovery.

Initial negotiations between the Basque Nationalist Party, which leads the Basque government, and Mr Gonzalez's socialists in the Madrid central government have not been encouraging. The Basques played too strong a hand as they hurriedly sought to extract home rule prerogatives in return for supporting Mr Gonzalez, and they were turned down.

Despite the early misunderstandings and the ill-tempered exchanges that accompanied them, the talks have not been broken off. Mr Gonzalez is still seeking a stable pact - ideally with nationalists, both Basque and Catalans, in his cabinet - that will ensure the survival of his government.

There are, therefore, grounds to expect that home-rule wrinkles will be ironed out, and with them the aggrieved and irritable rhetoric which has traditionally characterised the mainstream Basque nationalists.

A spell as junior partners in a Madrid coalition government will certainly help the Basque Nationalist Party to shake off its narrow localism. It should also aid Spaniards to lose the suspicions they harbour about the Basques as a whole as a consequence of Eta terrorism.

The planned overhaul of labour market rigidities by the Madrid government meanwhile appears tailor-made for the Basque Country's recession-hit industry. With its numerous small plants, employing up to 25 workers, the Basque Country urgently needs flexible labour practices that allow for functional mobility and labour force adjustments.

Current legislation, which applies to the Basque Country as it does everywhere else in Spain, is weighted towards fixed employment and makes dismissals costly. This legislation has been arguably the most important factor in deterring investment, in raising unit labour costs and, in the final analysis, fuelling the rise of joblessness in Spain.

Unemployment levels in the Basque Country are higher than the national average.

The Basque government should also be able to use the lead given by Madrid with its decision to impose wage restraint and, in particular, to freeze public sector salaries next year in order to reduce the spiralling public deficit.

In one of the least satisfactory aspects of autonomous governments in action, civil servants in the Basque government, including teachers and members of the Basque security forces, earn far higher salaries than do their Madrid central administration counter-parts.

ELA-STV, the Basque trade union which wields strong power in the white collar sector, is sticking out for exactly what the Basque economy does not need: 6 per cent wage rises, more public sector jobs and shorter working hours.

At present the Basque Country cannot afford the luxury of inflationary union deals any more than it can waste time on the finer points of home rule prerogatives.

It must take the route which establishes an efficient dialogue with Madrid. That will help restore competitiveness to its economy and in so doing solve the tension-ridden contradictions of its community.

Mr Jens Stoltenberg, 34, Norway's new oil industry minister, faces a busy opening period in his four-year term of office. Oil companies have no less than 25 field development plans on the drawing board, for 15 of which they intend to lodge development and operation plans this year and next.

According to the Norwegian Oil Review - a domestic trade journal published by Mr Hans Henrik Ramm, a former Conservative government state secretary - development concepts for 25 oil and gas fields are being evaluated by oil companies with oil fields containing recoverable reserves of between 2m tonnes and 70m tonnes and gas fields ranging from 3bn to 10bn cubic metres.

A recent report warned that precious few of these fields would be profitable under Norway's current tax regime if they used conventional technology and oil prices remained low.

The government recently disclosed that it was drafting changes to the petroleum tax regime that could increase the financial burden of foreign and domestic oil companies. The oil industry has expressed strong disapproval of the plans, saying they would have a negative impact on the industry and damage the government's credibility. Oil companies point out that investment decisions have already been made in the expectation that the 1992 reforms of the fiscal regime would prevail for longer than one year.

Last year's reforms created a loophole for foreign oil companies, allowing them to repatriate funds to parent companies at considerable loss of revenue - several hundred million kroner annually - to state coffers.

Mr Stoltenberg does not foresee other major changes to oil industry policy during his term but says emphasis is likely to shift to gas from oil.

'We have to develop our land-based industries to be competitive without them being dependent on oil revenue to provide state subsidies,' he says.

One of Mr Stoltenberg's first achievements as minister was to forge closer ties with the former Soviet state of Kazakhstan.

He recently travelled there and signed a memorandum of understanding to establish an energy forum. He also promised five educational scholarships to Kazakhs under Norway's Petrad programme, which aims to enhance the expertise of the participants in the fields of petroleum management and administration.

A former state secretary of environment and an environmental activist in his youth, Mr Stoltenberg does not believe he should be forced to choose between petroleum and the environment.

'The moment you choose, you lose,' he says. 'The message of the Brundtland Commission's report to the United Nations on the environment is sustainable development, and this is what we intend to accomplish but not at the expense of the environment.'

Mr Stoltenberg concedes that in the long-term, Norway's production policy could be open for discussion. 'How much oil should we really be taking out of the North Sea?' he asks. 'Environmentally speaking, it's easy to defend our depletion policy because part of our production is natural gas - and gas is an environmentally friendly replacement to other fuels.'

Norway's natural gas supply to Europe is the most concrete and important contribution the country can make to sustainable development, he says. 'It's good business and it's our way of helping to reduce Europe's harmful emissions.'

Norway has about 40 years of crude oil production left at current levels and 80 years of gas at a rate of 60bn cu m annually - more than twice the current rate - which is expected to be achieved by the turn of the century. 'We're not just pumping oil and consuming it. . . we are investing in Norway's future with petroleum revenue in a responsible way. Norway is nearly debt free and by 1994 it is possible we will succeed in further reducing our foreign debt, thanks to petroleum revenue.'

In true social democratic style, Mr Stoltenberg argues that 'it's not a question of eating up Norway's petroleum oil wealth, but more an issue of distribution of wealth to the benefit of society'.

Caribbean sugar producers are seeking compensation from the European Union for losses which they say they will incur because of a European Commission proposal that the EU's existing sugar regime be extended for two years to June, 1995. The Sugar Association of the Caribbean, a producers' lobby, said this week that the region's exports, and those of others in the African, Caribbean and Pacific group, which has a trade treaty with the EU, would be 'damaged' by the two-year postponement of the sugar marketing protocol.

Producers should be compensated through the sugar protocol, in the way that EU's beet sugar producers are compensated for declines in their income, the association said.

ACP producers have a guaranteed market for 1.3m tonnes (raw value) per year, with their earnings linked to the intervention price paid by the EU to its domestic sugar producers.

Efforts being made by European zinc producers to co-ordinate capacity cuts would result in one or two smelters closing by the end of next year and this would almost certainly cause a fast price rise to about 60 cents a lb, more than one third above today's level, according to Mr Jean-Pierre Rodier, chairman of Union Miniere, the Belgian group that is the world's biggest zinc producer.

He was speaking at a symposium organised by the Belgian Non-Ferrous Metals Federation where another speaker, Mr Philip Crowson, chief economist at the RTZ Corporation, the world's biggest mining company, was highly critical of the so-called zinc smelter 'shut down' proposals.

European producers decided early this month to press ahead rapidly with the scheme, which aims to eliminate substantial over-capacity by the permanent closure of one or two smelters, the cost of which would be paid for by the industry as a whole.

Mr Crowson hit out against the scheme by suggesting: 'Agreements to close down European smelters, always assuming any are concluded, will have but a limited impact if they are not accompanied by a standstill on offsetting investments elsewhere.

Mr Rodier agreed that market forces would eventually curb overcapacity, but that would take time and have brutal social consequences. 'And it might not be the worst zinc smelters that close - just those where the shareholders are fed up with investing in zinc.'

------------------------------------------------ LME WAREHOUSE STOCKS (As at Monday's close) ------------------------------------------------ tonnes ------------------------------------------------ Alumunium +16,075 to 2,368,300 Alumunium alloy +100 to 49,000 Copper -1,075 to 584,750 Lead -575 to 297,825 Nickel +174 to 118,188 Zinc +3,850 to 854,575 Tin -30 to 19,410 ------------------------------------------------

The Organisation of Petroleum Exporting Countries last night conceded that it would have to go back to square one in its quest to end the decline in oil prices.

In a speech which will add to pressure on the oil ministers meeting in Vienna to make cuts in the present production ceiling of 24.52m barrels a day, Mr Jean Ping, the energy minister of Gabon and Opec president, gave a gloomy assessment of market conditions.

He noted that the price of the Opec basket of six crude oils was Dollars 14.70 yesterday, the level before Opec's September meeting in Geneva at which it set the ceiling in an effort push prices closer to the Opec target of Dollars 21 a barrel.

That ceiling has been largely observed, according Mr Ping, with output in October of 24.85m b/d. The bulk of the over-production occurred in Iraq, which is barred from exporting by United Nations sanctions. Ministers will focus over the next few days on possible further production cuts. Analysts say it could take at least a 3 per cent immediate reduction in the ceiling to counter bearish market psychology, especially as Opec calls for producers outside the organisation to curb their output are unlikely to lead to any short term relief.

Sharp falls in prices for sister metals platinum and palladium yesterday afternoon were a 'wild overreaction' to an announcement of a new motor emission control system, according to Ms Rhona O'Connell, analyst at stockbroker T. Hoare and Company.

The January platinum futures price fell by 2.3 per cent and the palladium December price by 2.75 per cent at the New York Mercantile Exchange after Engelhard Corporation said it had developed technology that trapped hydrocarbon emissions during the first two minutes of vehicle operation that a catalytic converter took to become activated.

Ms O'Connell suggested this might result in an add-on to conventional emission control systems but did not appear to threaten the autocatalyst markets for the two metals.

Mr Gordon Bassett, general manager for precious metals marketing at Johnson Matthey North America, agreed. 'This is not something that would effect palladium or platinum use,' he told the Reuter news agency. And an Engelhard representative confirmed that the company's hydrocarbon trap would be used in addition to, rather than in place of, traditional catalytic converters using platinum group metals.

Prices for both metal recovered somewhat near the close. In late trading, Nymex's January platinum position was quoted Dollars 1.90 off the day's low at Dollars 374 a troy ounce, still Dollars 6.90 down on the day, while December palladium had edged up by 50 cents to Dollars 126 an ounce, down Dollars 3.05.

'Platinum was looking pretty weak on fundamental grounds irrespectively,' Mr George Milling-Stanley, analyst at Lehman Brothers, told Reuter.

LEADERS OF Scotland's farmers are to press the UK government in London today to fight penalties imposed on them by the European Commission for apparently exceeding their cereal production ceiling.

The House of Commons is also holding an adjournment debate to discuss the penalties, which the National Farmers' Union of Scotland says will cost Scottish agriculture Pounds 20m.

The NFU accuses the commission of 'blatant discrimination' for offering a scheme to allow a gradual phasing in of penalties against farmers in eastern Germany who apparently overshot their production limit, but failing to offer a comparable solution to Scottish farmers.

The problem has arisen from a discrepancy between the 'base area' used by the UK government to calculate what Scotland's cereal production should be under the European Union's reformed common agricultural policy, and the actual arable area for which farmers have claimed compensation from Brussels for cuts in support prices.

Because the farmers' claims have exceeded the base area by 5.4 per cent, Brussels is reducing their compensation payments by the equivalent - Pounds 4.5m - this year.

It is also requiring them to set aside an extra 5.4 per cent of their cereal-growing land next year without any compensation, in addition to the 15 per cent set-aside for which they are paid under the CAP reforms.

The Scottish NFU says the base area was calculated using unreliable census figures from 1989-91 and that the farmers' claims, worked out using maps and precise measurements of land, are far more accurate. 'Farmers have taken a great deal of care when filling these forms in because their livelihoods depend on it,' said Mr Tom Brady, deputy chief executive.

'All the evidence we have suggests there hasn't been an overshoot at all.'

He pointed out that the Scottish Office had found statistical errors in its census figures that had already forced it to ask Brussels to reduce the apparent overshoot from 16 per cent to 5.4 per cent.

The farmers feel the penalties are particularly unfair given the estimated 20 per cent fall in this year's Scottish cereal output to about 2.3m tonnes, due both to set-aside and to bad weather at harvest time. 'Common sense has been stood on its head,' said Mr Brady. 'Scotland has made the biggest percentage contribution to reducing cereals oversupply in Europe, but still we are the only area of Europe to have substantial increases in set-aside announced.'

The NFU wants the Scottish 'overshoot' to be balanced against a shortfall in compensation claims by English cereal farmers to give an overall UK figure in line with target output.

But the Scottish Office, which points out that farm incomes have been boosted this year by the devaluation of sterling, is standing by its figures. 'The 5.4 per cent overshoot is being confirmed by provisional census returns coming in now,' said an official.

Mr David Douglas, agricultural manager for Clydesdale Bank, expressed concern about the impact of the penalties on farm profits. He added: 'If this does come off, a lot of people will start to question whether they continue with set-aside or go back to farming without subsidies. It starts to defeat the object of the whole exercise.'

Curiouser and curiouser,' cried Alice in wonderland. More curious still is that the Jobs column seems to have joined her without doing anything unusual such as following rabbits down holes or drinking strange potions (other than those prescribed for the Beijing flu).

All I did was ask you readers a practical question about the most everyday of topics: to wit, how do you do your work?

That was 10 weeks ago, and 128 of you have kindly replied from 14 countries, citing experience in a great variety of jobs. The snag is that the answers often just deepen the mystery my question was meant to clear up. Indeed, some of your explanations of how skilled work is done are literally out of this world. An example is the reply from Switzerland saying: 'The key to this phenomenon is reincarnation.'

The question certainly seemed down-to-earth on the day it was asked, even though the work you readers do is of a complex mental kind. Ironically, I was expecting most of you to confirm that the way you actually use your mental skills is less complicated than we are led to suppose by a notion evidently underpinning the bulk of conventional education. And while the fact that you've largely done the opposite may serve me right for being presumptuous, I do wish you hadn't. In that case, what follows would have been plain sailing - just a summary of your practical explanations, contrasting them with the said educational notion.

But now you have brought reincarnation and the like into the act, some philosophy is unavoidable. So let's start with the proposition that there are different kinds of knowledge, of which two in particular form the main focus of academic curricula.

One kind is factual: knowing that something is so. The other is the explanatory sort: knowing why something is so. For ease of reference, both the know-that kind and the know-why sort can be lumped together as know-about - which brings us back to the educational notion.

It is that operations requiring mental ability consist of two separate stages. First, we think out what to do, using know-about to form an intellectual plan of the actions that need to be taken. Second, having drawn up the plan in our heads, we carry it out in practice.

Now that is clearly far from always the case. For example, we all know that it is possible to ride a bicycle, so being more clued-up than Dr Johnson who apparently refused to believe it. Moreover those of us who also know why it is possible would be better equipped than his contemporaries to persuade him he was wrong to see it as the equivalent of lifting oneself up in a bucket.

But possession of both the know-that and the know-why would not be enough to enable someone to ride a bicycle. That requires know-how, which is different. It strikes me that what applies to bike-riding applies to most kinds of skilled work. And the same view happens to be shared by about 70 per cent of you who replied. The trouble is that you differ radically in your beliefs about know-how's nature, being split into three main camps.

One is the pure intuitionists for whom know-how ranges from indefinably intricate to plumb mysterious. While few go as far as the Swiss reincarnationist, a good many come close, especially in their account of creative skill. To them, its essential source is not in any individual head or body, but in a universal, supra-human, invisible intelligence. In support, one camp member has sent proofs from a book to be published next year by Blackwell, which cites a study of the use of intuition by 1,312 managers in nine different countries.

At the other pole are the grey materialists, who see know-how as rooted in the pulses of the flesh, particularly the bit in the brainbox. Although less expansive than the intuitionists' accounts, their views are more testable. What's more, they have the broad backing of an authority in the field, neuropsychologist Tim Shallice of London University.

He says the latest scanning techniques have already traced the networks of brain cells responsible for numerous 'sub-components' of mental action, such as ability to recall short lists of words. Some of the processes, however, are intelligent without being conscious. An example is 'blindsight', by which certain people partly blinded by illness can not only detect but precisely locate a purely visual stimulus they cannot physically see.

Professor Shallice expects that in 20 years or so we will have a brain map of all the main mental functions. But even if we do, it won't solve the ultimate question of why they operate intelligently.

Hence there would seem to be still room for incorporeal if not unearthly influences of the sort favoured by pure intuitionists. To which my response, as perhaps befits a scared sexagenarian, is agnostic. After all, though such postulations seem improbable, there is no conclusive evidence to hand that disproves them.

The only one of the camps I feel able to refute is the smallest: 37 readers who think know-how essentially the same as the know-about taught in schools. The sole reason why our practical skill often seems intuitive, they say, is that we have so deeply absorbed the know-thats and know-whys which compose it as to have forgotten we ever learned them.

My disagreement is on two grounds: real-life experience and an observation made a century ago by the American pragmatist philosopher William James. It is that a distinction between two kinds of knowledge is recognised by several languages other than English. One sort is intellectual know-about - wissen in German, for instance. The other is kennen: direct knowledge as exemplified in knowing another person.

The related experience came in August when with Pam, my wife, and our 34-year-old son Jon, I was sailing our Holman sloop Malaguana from Dartmouth to the Exe. The wind was moderate but tricky and the tide unfavourable, if anything worsening with time.

I've done a fair deal of sailing, and helmed for the first hour. At the end we'd gone 3 1/2 miles, but 20 degrees off the ideal course.

The second hour was steered by Jon, who has thousands of sea miles behind him, hundreds of them in Malaguana. He too firmly grasped the stout wooden tiller, though with a lighter hand than mine, and managed 4 miles no more than 10 degrees off line.

He then persuaded Pam to take over, which she resisted because she has done hardly any helming except on a previous sail alone with Jon. Nor has she any time for, let alone knowledge of, the theory of sailing. Instead of grasping the tiller, she just rested one finger on it . . . and achieved 4 1/2 miles dead on course.

'Isn't it sickening?' Jon said. 'She out-sailed me last time too.' Asked how she did it, she said: 'I can feel with my finger when the boat's going at her best. So if she falls off, I just nudge her gently about till she's happy again.'

That is plainly a case of James's direct knowing. What's more, on reflection, I find the same provides a more fitting explanation than know-about of my way of writing. The salient difference is that, whereas Pam 'feels' the boat, I 'hear' the English language. So it may be that the main root of know-how is unusually sharpened senses.

True, there is not much hard evidence to support my theory either. But at least it's simpler than reincarnation.

The timing of yesterday's half-point cut in the base rate from 6 per cent to 5.5 per cent took the UK government bond market by surprise and sparked a sharp initial rally in the cash and futures markets.

After a volatile day, gilt prices ended between 1/8 and 1/2 point higher, with long-dated issues seeing the biggest gains, helped by the prospects of continued low inflation.

Dealers reported keen buying interest in the cash and futures markets after the rate cut announcement but prices later fell back. 'Investors liked the news, but then they appeared to be pausing for breath as they tried to make up their minds about the longer-term implications and the Budget,' said one dealer.

Expectations of a rate cut at the time of the Budget had been priced into the short end of the gilt market, although dealers said the cut had been expected slightly closer to the November 30 Budget.

Mr John Kendall, UK economist at Baring Sterling Bonds, noted there was 'a lot of yield curve play - a lot of people are borrowing at the short end and buying the long end' of the gilt market because the gilt yield curve is positively sloped.

German government bonds closed lower, with dealers blaming the gloomy international background rather than any domestic features.

Monday's disappointing October money supply figures, which showed M3 growing by a higher than expected 6.8 per cent, pushed back expectations of a Bundesbank easing.

However, dealers said hopes of a cut in key rates could be revived if the November cost of living data for the regions (due this week) lead to a decline in the west German October's figure of 3.9 per cent. Some economists are predicting a November figure of 3.7 per cent.

Dealers noted some extension trades, from medium to long-dated bunds, but despite the switches the long end of the market still underperformed the five-year area.

Italian government bonds suffered another substantial fall on panic selling by foreigners in the wake of the weekend municipal election results.

Following Monday's tumble of nearly two points, Italian debt prices lost a further two points yesterday but clawed back some of the losses to end about a point lower on the day, with dealers arguing that the market had been oversold.

The local elections dealt a blow to Italy's established political parties, and raised questions about the possible impact on the 1994 budget. However, yesterday the finance minister told reporters nothing had changed regarding the 1994 budget.

Italy's ex-communist opposition yesterday guaranteed approval of the 1994 austerity budget by the end of the year, adding that the turmoil on financial markets after the weekend local polls was completely unjustified.

The BTP futures contract settled at 112.64 on Monday. It opened at 112.03 yesterday and dropped as low as 110.50 as investors rushed to sell their bond holdings, but later recovered to trade at around 111.50 by late afternoon.

Italian 10-year yield spreads over German bunds have widened to about 400 basis points, from around 300 basis points just over a week ago.

Spanish government bonds were dragged lower by the combination of turmoil in Italy, general weakness in the European bond markets, and threats of a general strike by some Spanish trade unions in protest at the government's proposed labour market reforms.

Hopes of a 1/4 point cut in Spanish interest rates were disappointed at the repo.

Longer-dated US Treasury securities jumped sharply yesterday as short sellers were forced by rising prices to buy large amounts of bonds to cover their positions.

In late trading, the benchmark 30-year bond was up 1 1/16 at 99 5/32 , yielding 6.308 per cent. At the short end, the two-year note was up 1/8 at 100 1/16 , to yield 4.201 per cent.

After Monday's losses, dealers were not surprised when the market staged a rally from the opening yesterday. Technical buying related to the price of the December Treasury bond futures contract was one reason for the early gains.

Prices remained firm until midday and then climbed sharply in mid-afternoon as short-covering began in earnest. The activity was mainly restricted to dealers and speculators who had sold bonds short in anticipation of further losses.

Cable & Wireless, the UK telecommunications group which last week reported a 30 per cent increase in interim pre-tax profits to Pounds 509m (Dollars 750m), raised Dollars 400m yesterday through its first Eurodollar offering.

Demand was such that the unrated borrower achieved a yield spread of 73 basis points over US Treasuries on its 10-year Eurobonds, at the tighter end of the indicated range of 73 - 75 basis points.

The spread compared favourably with current spreads on other 10-year Eurodollar offerings launched recently by double A-rated UK companies.

Traders said that the yield spread on National Power's Dollars 300m offering of 10-year Eurobonds, which was launched last week, stood at 70 basis points yesterday while the spread on the Dollars 500m offering of 10-year Eurobonds issued by BAT Industries on November 9 stood at 80 basis points.

Mr Richard Wainright-Lee, director of corporate finance at C&W, said the company was taking advantage of favourable market conditions. The proceeds of the offering would be used to finance the development of the company's business activities in eastern Asia, Europe and the Caribbean.

However, he indicated that C&W was unlikely to return quickly to the Eurobond market because it was not under pressure to raise funds. 'There is no heavy need to borrow,' he said.

Lead manager JP Morgan said around 20 per cent of the bonds were placed in Asia, 15 per cent in the Middle East, 15 per cent with US offshore accounts, 30 per cent in continental Europe and 20 per cent in the UK.

Elsewhere, Treasury Corp of Victoria injected badly-needed liquidity into the Australian dollar sector of the Eurobond market with its ADollars 500m issue of global five-year bonds, its second Australian dollar global bond offering this year.

The bonds were priced to yield 12 basis points below the 12 per cent State Electricity Commission of Victoria's domestic bond due 1998. When they were freed to trade the spread remained intact.

Lead manager Merrill Lynch said that 60 per cent of the bonds were placed with US investors.

Nigerian par bonds rallied strongly yesterday, regaining most of the ground they lost following last week's coup, despite growing concern over Nigeria's overall debt position.

The bonds rallied from 39 cents in the dollar at the start of the year to a high of 63 cents in October. Prices have held up surprisingly well in the face of renewed political turmoil and rebounded several points to 58 1/4 cents yesterday, on news of the appointment of a provisional ruling council.

'Given the uncertainty, the price does seem rather high, and the market could prove vulnerable to further shocks to confidence,' said Mr Mark Evans of ING Bank. However, traders point out that the bonds cost Nigeria only Dollars 110m a year to service - only two days of its oil revenues.

International institutional investment in emerging stock markets has risen to 13 per cent of international funds this year from 10 per cent last year, according to a survey* published yesterday. This compares with only 2 per cent in 1989.

The survey also showed investor attention had shifted from leading Latin American and Pacific Rim markets to lesser-known markets in Africa, the Middle East and Europe. In 1990, only 7 per cent of respondents had holdings in Africa and the Middle East but this figure is now 50 per cent. Markets in southern and central Europe are now part of 85 per cent of portfolios, an increase of 20 per cent.

Thirty per cent of survey respondents have committed funds to Poland and 14 per cent have invested in Zimbabwe, the Czech Republic and Morocco. A handful of investors have entered Ghana, Botswana, Ecuador and Panama. They have also taken direct equity stakes in local companies in Papua New Guinea, which does not have a stock market as yet.

Survey respondents said that although investing in emerging markets had become 'fashionable', several areas of practical concern remained in these high risk-high reward markets.

These included inadequate custody and settlement, bureaucratic regulatory environments and the lack of quality information. Venezuela, China, India and the Czech Republic were cited as the main markets where investors encountered these problems.

More than 40 institutional investors and several large pension fund advisers from North America, Europe and Japan took part in the survey.

* Fifth annual emerging stock market survey conducted by Kleiman International Consultants, 6215 32nd Place NW, Washington DC 20015, USA.

LCF Edmond de Rothschild in London, which is currently involved in traditional broking and fund management businesses, has set up a new company which will manage funds in the growing managed derivatives market.

Edmond de Rothschild Derivative Fund Management plans to create a variety of funds emphasising the use of derivative instruments rather than securities, including managed futures, hedge, index-tracking and protected capital funds.

Its first fund, a geared futures fund investing in currencies, bonds and stock indices, will be launched in the next few weeks. It will be an off-shore fund, based in Luxembourg.

Mr Adam Parkin, Mr Robert Dawkins and Mr James Palmer have joined the new venture from John Govett & Co, which launched the UK's first authorised futures funds two years ago.

Mr Jonathon Hughes-Morgan is joining from Odey Asset Management, a hedge fund manager.

American Airlines yesterday said it was encouraged by its recovery from a five-day strike by flight attendants, which ended on Monday after the unexpected intervention of President Bill Clinton.

The airline said it would return to a full schedule of flights by Thursday - Thanksgiving Day. The announcement eased concern over the possibility of widespread disruption of the country's air transport system during the busy holiday period.

However, industry observers say the walk-out, which appeared to have been much more successful than American had anticipated, will have an immediate financial impact on AMR, the airline's parent, and could complicate its efforts to reduce its cost structure in the longer term.

In New York, the stock fell sharply after two Wall Street securities houses - Merrill Lynch and Bear Stearns - downgraded their ratings. At the close, AMR was Dollars 3 lower at Dollars 65 1/8 in heavy trading.

As part of a back-to-work deal brokered by the White House, the airline agreed to re-open bargaining with 21,000 members of the Association of Professional Flight Attendants and submit to a final contract ruling by a federal arbitrator.

American yesterday said contract negotiations would begin in about six weeks.

Mr Kevin Murphy, an analyst with Morgan Stanley, the New York investment house, estimated the strike cost American up to Dollars 140m, which he described as 'the saturation point' for the airline.

Mediobanca, the Milan merchant bank guiding the restructuring of Italy's troubled Ferruzzi group, allegedly knew of severe financial difficulties and malpractices at the company well ahead of their revelation this year.

The claim, made in Italy's authoritative Sole 24 Ore business newspaper, is based on leaked documents from the former administrative director of the Ferruzzi Finanziaria (Ferfin) holding company.

The documents include a letter giving details of the off-balance-sheet loans taken out by obscure Ferfin subsidiaries to cover up heavy trading losses by the group.

The letter outlines the complex financial transactions involving loans taken out by offshore shell companies on the instructions of one of the Ferruzzi family's most trusted financial advisers based in Lausanne, Switzerland.

It is addressed directly to Mr Gerardo Braggiotti, the senior Mediobanca executive responsible for Ferruzzi.

Milan magistrates last week issued an arrest warrant against Mr Braggiotti's father, Enrico, a former chairman of Italy's big Banca Commerciale Italiana, regarding an alleged Dollars 50m payment to secure BCI's good offices during his period as chairman.

Separately, lawyers for Montedison, the big industrial company which is Ferfin's main operating subsidiary, indicated yesterday that the legal action against former executives could soon be extended. This follows information unearthed by the magistrates investigating financial irregularities and political corruption.

Grupo Synkro, the leading Mexican leg-wear company, and its principal investors, have agreed to buy the US tights maker Kayser-Roth for Dollars 233m, making the new group the world's second largest producer of hosiery.

The transaction is believed to be the third largest Mexican purchase of a US company, following Vitro's acquisition of Anchor Glass in 1989, and Mr Carlos Cabal Peniche's takeover of Del Monte Fresh Produce last year.

It marks a drive by leading Mexican companies to expand abroad as they grow out of their own markets, and face increasingly intense global competition.

The transaction, which would have gone ahead without the North American Free Trade Agreement, is expected to benefit from reduction of tariffs and increased flow of trade generated by the pact.

Synkro is Latin America's leading hosiery company, with expected sales this year of about Dollars 200m. It has more than 50 per cent market share in Mexico, and about 10 per cent in Argentina, where it owns a manufacturer and distributor of tights. Mr Bernie Jacob, vice-president of Chase Manhattan, which advised on the transaction, said the company was looking for other acquisitions.

Kayser-Roth has annual sales of about Dollars 400m and is owned by Collins & Aikman Group. Synkro said they would keep the same management, and would not export jobs to Mexico, only Kayser-Roth's brand names.

Mr Michael Ainslie, president and chief executive of Sotheby's Holdings, is to leave the US-owned fine art saleroom in January. He will be succeeded by Mrs Diana Brooks, president and chief executive of Sotheby's worldwide auction business, writes Antony Thorncroft.

Foschini, the South African retail clothing and jewellery group, overcame difficult trading conditions to record a 19.5 per cent increase in pre-tax profits to R88.3m (Dollars 26.2m) in the six months to September, from R73.9m a year ago, writes Philip Gawith in Johannesburg.

Macquarie Bank, the Sydney-based institution in which Hill Samuel holds a minority stake, yesterday reported profits after tax of ADollars 31.2m (USDollars 20.6m) in the six months to end-September, a 17.4 per cent improvement over the same period of 1992, writes Nikki Tait in Sydney.

Argentina expects to raise about Dollars 130m in its next privatisation. Economy Minister Domingo Cavallo announced yesterday the government will offer its 30 per cent stake in the Central Puerto power station in Buenos Aires at Dollars 5.30 per share, writes John Barham in Buenos Aires.

Carter Hawley Hale, the US department store operator which emerged from Chapter 11 bankruptcy protection a year ago, suffered further losses in the third quarter, as the costs of implementing a strategic plan continued to hit the bottom line, writes Frank McGurty in New York.

For the three months to October 30, Carter Hawley posted a net loss of Dollars 25.1m, or 54 cents a share. In the corresponding period of 1992, it reported earnings of Dollars 1.16bn, but the result included a one-time gain of Dollars 892m related to the company's reorganisation, plus a special Dollars 304.4m gain on debt retirement.

Without the extraordinary items, the company would have posted a net loss of Dollars 29.5m a year ago.

Procter & Gamble, the US consumer products group, has extended its activities in China with three joint ventures to make laundry, cleaning and personal cleansing products, writes Richard Waters.

The company, which first began manufacturing in the country in 1988, has formed the joint ventures with Hutchison Whampoa, the Hong Kong group which is a partner in its other China operations, and the Chinese state-owned companies which own the three facilities.

Shares in Paramount Communications tumbled yesterday as it emerged that far more investors had tendered their shares in support of the Viacom bid for the company than the competing, higher one from QVC, writes Richard Waters in New York.

Both bids have been extended by two days, pending a court decision on a legal challenge mounted by QVC.

Viacom said 12.3m shares in Paramount had been tendered in support of its bid, equivalent to 10.5 per cent of the company. QVC, on the other hand, said 209,829 shares had been tendered for its offer, equal to 0.2 per cent of Paramount's shares.

On Wall Street, Paramount closed Dollars 2 1/2 lower at Dollars 76 1/2 .

Paramount Communications and AT&T announced plans yesterday to develop pilot interactive television programmes for broadcast in the US.

Paramount will use AT&T software to put together interactive versions of two popular US television programmes, one on entertainment and the other on sports, which can be delivered over cable TV systems, telephone lines or satellite links.

The Steel Authority of India (Sail), the country's largest steel producer, lifted net profit 18 per cent to Rs630m (Dollars 20m) for the six months to the end of September due to increased sales and cost-cutting, writes Kunal Bose in New Delhi.

Sail's performance contrasts sharply with that of Tata Iron and Steel, the country's second largest steelmaker, which recently reported a sharp fall in profit.

Sail, a state-controlled enterprise in which the government has sold a 10.52 per cent stake to private shareholders, stands out as among the most efficient of India's large state-owned industrial enterprises.

Gaz de France is injecting CDollars 100m (USDollars 75.2m) into Noverco, the holding company that controls Quebec's regulated natural gas distributor and several non-regulated businesses.

This gives the French utility 24 per cent of Noverco, which has been looking for a strategic partner for some time.

It becomes a partner in Noverco with Soquip, a Quebec government energy agency (38 per cent), the Caisse de Depot (30 per cent), and Levesque Beaubien (8 per cent).

Noverco and Soquip control gas production in western Canada and the gas pipeline between Montreal and Quebec City. The Caisse de Depot, with assets of nearly CDollars 45bn, manages the Quebec public sector pension funds.

Gaz de France said its investment was part of its international expansion. The two groups have had technical partnerships for some time.

Noverco's gas distribution unit, Gaz Metropolitain, has a pipeline network covering more than 5,000 miles (8,000km) in Quebec and Vermont. It bought New England Gas last year and plans to become a significant force in the north-eastern US. Its long-term strategy includes using the St Lawrence Valley as a distribution hub with direct pipeline connection to the Boston area.

For the year ended September 30, Gaz Metro had sales of more than CDollars 1bn and profit of CDollars 111.4m.

Foschini, the South African retail clothing and jewellery group, overcame difficult trading conditions to record a 19.5 per cent increase in pre-tax profits to R88.3m (Dollars 26.2m) in the six months to September, from R73.9m a year ago.

High productivity levels helped profit growth outstrip the 17.8 per cent increase in turnover compared to 1992 (no turnover figure supplied). Attributable income rose 37.4 per cent to R53.3m.

The company paid a R52.4m interim scrip dividend. Based on a share price of R68, shareholders will receive an allotment of one new ordinary 5 cents share for every 59 held.

With signs of an economic upturn, Mr Stanley Lewis, chairman, forecast 'satisfactory profits and earnings growth' for the full year.

Mr Clive Hirschson, managing director, said all trading divisions had been satisfactory. The rate of store expansion has been stepped up with 15 new stores opened in October alone compared to 12 during the reporting period. Jewellery group Sterns, purchased in April, had been repositioned and was now well placed to make a profit contribution in the second half.

During the period two Foschini directors were appointed to the board of UK clothing retailer Etam, 36.4 per cent owned by Foschini associate, Oceana Investment Corporation.

Macquarie Bank, the Sydney-based institution in which Hill Samuel holds a minority stake, yesterday reported profits after tax of ADollars 31.2m (USDollars 20.6m) in the six months to end-September, a 17.4 per cent improvement over the same period of 1992.

Mr Allan Moss, managing director, said the performance of all the group's main activities had been 'above budget'. Macquarie does not break down results by division, but the bank added that about one-third of group earnings came from fees, a similar amount from trading activities, and the final third from interest margins.

The bank, whose structure is closer to that of an investment bank, said that its equities division had a particularly buoyant first half, 'well exceeding' the same six months in 1992. Macquarie Equities claimed the number one position in terms of market share on the Australian Stock Exchange in September and October, and the group's underwriting business also benefited from the surge in new issues.

Non-accrual loans were ADollars 44m or 2.6 per cent of loan assets, compared to ADollars 28.1m, while net losses on bad and doubtful loans totalled just ADollars 0.58m, compared to ADollars 1.03m. Total assets at the half-year were ADollars 3.67bn, up by 15.9 per cent and the total capital adequacy ratio was 12.94 per cent. St George Bank, an Australian regional bank, yesterday reported an operating profit of ADollars 82.8m (USDollars 54.7m) after tax and abnormal or unusual items for the 16 months to September 30, AP-DJ reports from Sydney. St George said it would pay a dividend of 20 cents a share for the six months to end-September, making a total of 50 cents for the 16 months.

The Australian senate's joint statutory committee on corporations and securities has called on the Australian Stock Exchange to extend the deadline for submissions on differential voting rights until the end of February.

The issue has arisen in the context of a controversial plan by Mr Rupert Murdoch to issue News Corp shares with 'super voting rights' on a pro rata basis to existing shareholders.

The ASX has asked the investment community to submit views on the principles underlying the scheme by November 29, and has indicated that it will make a decision on the issue before Christmas. However, Senator Michael Beahan, who chairs the committee as well as a recently-announced inquiry into the role of institutional investors, said the ASX procedure on the super shares matter was 'not acceptable to the committee', and called for the longer timetable.

Mr Michael Ainslie, president and chief executive of Sotheby's Holdings, is to leave the US-owned fine art saleroom in January. He will be succeeded by Mrs Diana Brooks, president and chief executive of Sotheby's worldwide auction business.

Mr Ainslie, 50, joined Sotheby's in 1984 from the American National Trust. He said yesterday that he had always planned to stay for 10 years. He had told Sotheby's chairman and chief shareholder, Mr Alfred Taubman, last January that he wished to resign, and in April Mrs Brooks, 43, took over the day-to-day running of the company.

Under Mr Ainslie, Sotheby's consolidated its position as an international auction house and the largest in its field. However, it was hit badly by the recession and this month announced a net loss for the first nine months of 1993 of Dollars 1.3m, although that was a slight improvement over 1992.

Mr Ainslie, a large shareholder in Sotheby's, will remain a director but expects to take another job. Mrs Brooks' executive role will be shared between three or four colleagues.

Hopewell Holdings, the Hong Kong property and infrastructure conglomerate controlled by Mr Gordon Wu, yesterday brought its electric power assets to the Hong Kong stock market in a capital raising initially worth nearly HKDollars 11bn (USDollars 1.4bn).

The deal offers investors the chance to participate in China's expanding electricity industry. For Hopewell, it means a profit of nearly HKDollars 1.2bn on its investments in electric power, and the transfer of about HKDollars 390m of debt from its balance sheet to that of Consolidated Electric Power Asia (CEPA), the subsidiary to be floated.

Today, Hopewell offers Hong Kong investors 93.6m CEPA shares at HKDollars 12.50 each. The company's financial advisers, Peregrine Capital and Wardley, said yesterday that 381.4m shares at HKDollars 12.50 each had been placed with international investors. In total, Hopewell will raise some HKDollars 6bn through the flotation and placements.

In the words of one of CEPA's advisers, the float is 'not the most straightforward of offerings'. Hopewell has subscribed to 475m shares in CEPA at HKDollars 10 a share, and is selling these to investors at HKDollars 12.50 each.

Hopewell will also subscribe to 800m shares at HKDollars 10 each. Half of this is payable now and the remainder in two equal instalments on successive anniversaries of CEPA's December 6 listing. On full payment of the partly paid shares, Hopewell's interest will rise to 62.8 per cent.

CEPA comes to market with one of the most demanding valuations ever seen in the colony. The offer price represents a prospective price to earnings ratio of about 40 times forecast 1994 earnings of HKDollars 208m, and a 32.4 per cent premium over net tangible assets of HKDollars 9.44 a share.

However, analysts said the small size of the public offering combined with demand for CEPA shares should ensure that its shares perform well initially. In the longer term, the company's fortunes will depend on the extent to which Mr Wu can replicate past successes in building and operating power stations in China and the Philippines.

Indeed, CEPA is almost a pure 'concept' stock and a gamble not only on Mr Wu's business skills but on China's future. As Mr Eamonn McManus, director of corporate finance at Wardley, one of the company's financial advisers, said yesterday: 'People are investing in an energy fund; they are buying Gordon Wu's expertise and track record.'

Valuing the company is difficult and highly subjective, said Mr Archie Hart, director of research at Crosby Securities, a local brokerage. 'The value of this company is in a lot of deals yet to be made. What is the real value of this company? I don't know.'

The balance investors have to strike is between China and, more broadly, Asia's demand for electric power and the likelihood that 'letters of intent' and 'preliminary discussions' which CEPA has with provincial mainland authorities will materialise into contracts.

China's demand for power and its desire to develop rapidly its generating capacity is a matter of record. Annual electricity consumption per head was just 562kW in 1991, against 4,418kW in Hong Kong and 11,333kW in the US. China wants to add between 10,000 and 15,000 megawatts of capacity each year until the end of the century.

CEPA believes it is well placed to build some of this extra capacity. According to its prospectus, CEPA has a 'preliminary agreement' to install 1,320MW of power generating capacity in Guangxi province; 'letters of intent' to install 6,600MW of power in Jiangsu, Henan and Shandong provinces; and has had 'preliminary discussions' with two localities to install up to 3,900MW of capacity.

Mr Stewart Elliot, CEPA chief executive, indicated yesterday that up to 14 other deals on the Chinese mainland were being discussed when he said that CEPA has 20 letters of intent from various provinces. But he agreed that investors were buying CEPA on the basis of its future prospects.

He said, however, there was 'absolutely no doubt' in his mind that the projects referred to in the company's prospectus would materialise. After the CEPA float, 'negotiations to formal contracts will come very shortly,' Mr Elliot said.

Hopewell has demonstrated its ability to build large power stations below budget and ahead of schedule. Currently under construction are Shajiao-C in Guangdong - a 3x600MW coal-fired station - and Pagbilao in the Philippines, which is a 2x367.5MW unit. Together with other projects in the Philippines and China, these constitute the company's assets.

When they are constructed, CEPA will have generating capacity of 4,000MW, making it one-and-a-half times the size of Hongkong Electric and two-thirds the size of China Light & Power. Mr Elliot says the company's strategic aim is to become the 'principal independent supplier of power in Asia for the foreseeable future.'

Part of this entails becoming a retailer of off-the-shelf power stations. CEPA, Mr Elliot claims, is close to achieving what every first world power utility would like to do: standardise its product. Savings from standardisation would amount to between 15 per cent and 20 per cent of the cost of generation equipment, he said.

The Steel Authority of India (Sail), the country's largest steel producer, lifted net profit 18 per cent to Rs630m (Dollars 20m) for the six months to the end of September due to increased sales and cost-cutting.

Sail's performance contrasts sharply with that of Tata Iron and Steel, the country's second largest steelmaker, which recently reported a sharp fall in profit.

Sail, a state-controlled enterprise in which the government has sold a 10.52 per cent stake to private shareholders, stands out as among the most efficient of India's large state-owned industrial enterprises. Its managers have taken advantages of the changes brought about by the liberalisation of India's economy in the past two years, whereas Tata Steel's financial performance has suffered from management upheavals and from the cost of a large modernisation programme.

Sail's turnover in the period rose 12 per cent to Rs50.63bn. Production of steel rose 6 per cent to 4m tonnes in the half-year.

Mr M. R. R. Nair, chairman, said the product mix had been changed to suit market conditions. The improved performance came in spite of the stagnation in the market, and was attributed by Mr Nair to 'all-round improvement in productivity and reduction in costs. The energy consumption per tonne of steel produced has been brought down significantly.'

Exports rose almost fourfold to Rs3.21bn.

ABB Asea Brown Boveri, the world's largest power engineering group, reported flat profits of Dollars 215m before tax and non-recurring items for the third quarter.

Incoming orders tumbled 24.3 per cent to Dollars 5.3bn in the quarter, although much of the decline was attributable to currency effects.

The group said only Asian markets were strong. Demand in continental Europe was still weakening and the economic recovery in North America was having only a small positive impact on order intake.

Exports from Scandinavia were increasing and the UK market seemed 'poised for some growth'. Last month, a UK subsidiary of ABB won a Pounds 150m (Dollars 224m) contract to build and lease rolling stock to Network SouthEast, part of the UK rail network.

ABB is maintaining its forecast that profits before tax and non-recurring items in the full year will be at about last year's level of Dollars 1.11bn.

However, it signalled that net income would be lower, largely because of a Dollars 500m restructuring provision announced in August and the resultant higher tax rate.

Non-recurring items ballooned in the third quarter to Dollars 151m from Dollars 30m, as about 30 per cent of the provision was booked.

Third-quarter revenues were down 7.5 per cent to Dollars 6.7bn, but operating earnings jumped 33.5 per cent to Dollars 482m. ABB adjusts revenues upwards and financial income downwards as a way of attributing to its divisions the interest earned from cash advances from customers.

When, as in the third quarter, this process makes operating profits grow more quickly than pre-tax profits, it means that invoicing on projects from which the group has cash advances has been brisk.

For the nine months, profits before taxes and non-recurring items were down 1 per cent to Dollars 722m, but up 15 per cent in local currencies. The power plant, financial services and transportation segments improved earnings.

Revenues were down 6 per cent to Dollars 19.8bn, but up 4 per cent in local currencies. Order intake, down 15 per cent to Dollars 20.3bn, was down only 6 per cent in local currencies.

Holderbank, the Swiss cement group, said it had placed 200,000 bearer shares from its treasury with Union Bank of Switzerland.

Bank of Montreal, Canada's third biggest bank, has posted its fourth consecutive year of record earnings, thanks to a 7 per cent rise in interest income, and growth in fee-based services and securities trading. Kicking off the Canadian banks' annual earnings season yesterday, it said net income rose to CDollars 709m (USDollars 545m), or CDollars 2.59 a share, in the fiscal year to October 31, from CDollars 640m, or CDollars 2.38 a year earlier. Fourth-quarter earnings climbed to CDollars 201m, or 74 cents, from CDollars 160m, or 59 cents.

Return on equity for the year was unchanged at 14.1 per cent, but rose in the fourth quarter to 15.4 per cent from 13.4 per cent.

Revenues benefited from the receipt of CDollars 106m in overdue interest from Brazil during the year, including CDollars 30m in the fourth quarter. The bank also ascribed the rise in interest income to strong growth in residential mortgages and loans to smaller businesses.

Year-end assets grew by 7.2 per cent to CDollars 116.9m. The fourth-quarter return on assets improved to 0.70 per cent from 0.59 per cent. Non-interest income advanced by 20 per cent in the fourth quarter, including a 53 per cent jump in earnings from investment and securities business.

The bank said the quality of its assets was essentially stable. Bad-debt provisions totalled CDollars 675m last year, against CDollars 550m in 1992. The latter figure includes a CDollars 244m reverse of the general country risk provision.

Non-performing loans amounted to 2.9 per cent of total loans and acceptances on October 31, down from 3.1 per cent a year earlier.

The ratio of total capital to assets improved to 10.3 per cent (11.1 per cent based on US rules) from 8.9 per cent last year. This is well above guidelines set by the Bank for International Settlements.

BMO this year unveiled plans to capitalise more aggressively on its presence in the US, through Harris Bankcorp, its Chicago-based subsidiary.

General Motors continued its disposal of automotive component businesses with the sale of three plants to a newly-formed company in which it will hold a 20 per cent interest.

The plants to be sold make starter motors and generators and employ 2,200 workers.

Transportation Systems, a company whose investors include Citicorp Venture Capital and Mr Harold Sperlich, former Chrysler president, will take 80 per cent of the joint venture company set up to acquire the business.

The disposal, the value of which was not disclosed, marks the latest step in GM's divestment of component businesses.

It has now sold six of the 14 businesses that it last year said were for sale.

The businesses that are being sold are part of GM's Delco Remy division, which the company said would continue to produce a wide range of components as part of the group.

In September, GM agreed to sell an 80 per cent stake in its wiper systems and actuators business to a venture formed with ITT's automotive unit for Dollars 400m.

That month it also said it would sell its rear-drive axle drive shaft and related forging operations to American Axle & Manufacturing, a new company formed by former Chrysler executives.

In the 1970s and early 1980s a wave of US commercial banks invaded Germany amid a fanfare of publicity. Many left again soon afterwards having failed to penetrate the German banking market, leaving German businessmen unimpressed by the American 'talk first, action later' style of banking.

This time, the invaders are the US investment banks, eager to capitalise on the perceived sleepiness of the German financial services sector. But this time, the investment banks argue, they are here to stay.

'We have extraordinarily long-time horizons,' says Mr Phil Murphy, one of the two Frankfurt-based partners in Goldman Sachs. 'We are in this for 50 to 100 years.'

Goldman is the most aggressive and newest of the arrivals in Germany. Since it established its Frankfurt office in 1990 - until then it serviced its German clients out of London - staff have gone from zero to 120, doubling in the past year alone.

The firm has recently taken a second floor in the Messeturm skyscraper and has won high-profile mandates. For example, advising Daimler-Benz on its mould-breaking listing on the New York Stock Exchange. 'We were late on the ground, but now we have our foot on the gas pedal more than anyone else,' Mr Murphy says.

The London office - founded in 1968 and employing 1,300 people - remains Goldman's European headquarters. But Frankfurt is one of the firm's two fastest growing offices in the world, the other being Hong Kong.

'Our experience here shows you do not need GDP growth of 10 per cent a year (as in the thriving Hong Kong/south China region, in contrast to the recession-struck German economy) to run a successful investment banking operation,' Mr Murphy enthuses.

'We are extremely bullish about this market, across all divisions.'

The bullishness, shared by other US investment banks who set up German operations in the mid to late 1980s, reflects several fundamental factors:

An increased willingness on the part of German companies to appoint financial advisers, and foreign ones at that.

'The facts of life have changed for German corporates,' says Mr Murphy.

'The severity of the downturn is confronting them with new problems . . . people are seeking out new ideas and solutions.'

Investment banks have advised on high-profile transactions - CS First Boston, for example, advised Krupp on its hostile acquisition of steel-rival Hoesch last year. Morgan Stanley advised Schering on the sale of its industrial chemicals operations to Witco of the US.

A host of foreign advisers was involved in the complex transaction whereby Credit Lyonnais of France acquired control of the BfG Bank from the Aachener und Munchener Beteiligungs insurance group.

The capital markets are opening up.

Foreign, largely US investment banks are winning mandates once the preserve of the big German banks. This is true for corporate cash-raising exercises - foreign banks muscled in as co-lead managers to big issues from Veba and Allianz this year - and for governments and para-statal organisations in the international bond markets.

Salomon Brothers was co-lead manager to the World Bank's first D-Mark global bond. US investment banks have sole or joint lead managers of recent D-Mark Eurobonds from Belgium, Sweden and Argentina. Goldman was sole lead manager to a DM1bn (Dollars 588m) Eurobond issue from the Sudwestdeutsche Landesbank, the state bank for the Land of Baden-Wurttemberg.

This opening up - on the domestic side at least - is driven by growing competition for capital in Germany.

The costs of reunification have ensured that Germany has swung from being an exporter to an importer of capital. With the bulk of domestic savings due to be absorbed by government borrowings, the source of capital at the margin is the foreign investor. However, mighty institutions such as Deutsche and Dresdner Bank are in the domestic market but they do not have the placing power of the international investment banks.

Germany has taken convincing, albeit belated steps to enhance the attractions of Finanzplatz Deutschland, Germany as a financial centre.

One example is the second Financial Markets Promotion Law, approved by the German cabinet this month and to be enacted next year. This will make insider dealing illegal and create a regulatory framework for securities dealing.

'The move to outlaw insider dealing was a clear signal that Germany was serious about the development of its equity markets,' said Mr Murphy.

Frankfurt has worked hard on developing dealing and settlement technology which makes securities trading more congenial for international investment banks.

If technology and regulatory reform have helped woo the US investment banking community to Frankfurt, the buoyancy of German securities and currency markets has provided them with more tangible rewards.

The bund market has risen spectacularly since the summer of 1992. The DAX index of 30 leading shares is up by nearly 30 per cent since the beginning of the year and currency and derivatives markets are in a frenzy. All of which has provided banks in Germany with bumper trading profits this year.

Sceptics ask whether Goldman's commitment to the market place will falter once sluggish turnover levels return. Scepticism is compounded by Goldman's aggressive approach which some argue is a symptom of cultural differences between the Anglo-American approach to business and the consensus-oriented way in which corporate Germany operates.

Criticism focuses on Daimler's full listing in the US, on which Goldman advised. The move shattered the consensus under which German companies agreed among themselves not to give into the Security & Exchange Commission's requirement for greater financial disclosure.

Daimler and Goldman are adamant other German companies will follow suit, but as yet there is no evidence of this.

Volkswagen has pointedly chosen to raise money in the US via the US corporate bond market, saying it was not willing to make the disclosure associated with a full SEC-approved listing for its shares.

'Every country has its unwritten ground rules, and you can't ignore them,' comments the chief executive of a publicity-shy investment bank.

The remark was directed at Goldman Sachs, but Mr Murphy is adamant that the bank is in Germany to stay - and that the rules of the game have changed.

Four months after taking his seat at the head of Elf-Aquitaine, and with privatisation looming, Mr Philippe Jaffre yesterday gave his prognosis.

France's largest industrial group will, he said, see net profits fall by about 80 per cent, to just over FFr1bn (Dollars 170m), this year. Recovery next year is likely to be slower than expected by most observers, as a result of the continued downturn in European markets, the weak oil price and the depressed chemicals sector.

In response, he outlined a strategy of cost-cutting, disposals and strict limits on capital expenditure.

Mr Jaffre's statement indicate a clean-up rather than a crisis. 'He is providing for risks and preparing the group for privatisation,' says Mr Vincent Bazi, head of research at Barings Securities in France. The government is due to sell its 50.8 per cent stake in the oil group early next year, and Mr Jaffre wants to be ready.

Yesterday's warnings show he is treading a familiar path. Both Banque Nationale de Paris, which was privatised last month, and Rhone-Poulenc, which is in the final stages of its sale, issued profits warnings before being offered to the public, and took steps to cleanse their operations. Part of the the reason, say analysts, is to constrain the share price ahead of the pricing of the issue.

At the operating level, Elf continues to perform reasonably well, given the recession in Europe and the weakness of the oil price. Operating income is expected to fall 20 per cent for the year as a whole, after a fall of 34 per cent in the first six months. Cash-flow, the most important indicator for oil companies, is expected to be about FFr24bn for the year, roughly the same level as last year.

Debt, however, is perceived as a problem. 'What concerns me is the growth of financial charges,' said Mr Jaffre, emphasising that his priority was to stabilise the group's debt-equity ratio by the middle of next year, and reduce it thereafter. At the end of June, gearing stood at about 37 per cent. It is forecast to rise to between 45 and 50 per cent by the end of the year.

The rise in borrowings is the legacy of his predecessors, notably Mr Lok le Floch-Prigent, who pursued an ambitious policy of acquisitions and investments. At the end of June, group borrowings stood at FFr39.8bn.

'It has become a heavy burden,' said Mr Jaffre. 'At a time when our competitors are taking steps to reduce borrowings, so should we.'

The target is to keep the debt-equity ratio below 50 per cent.

This is where the clean-up comes in. Elf plans to reduce its borrowings through a series of asset sales. This will involve the unravelling of many of the group's financial holdings in other businesses.

Mr Jaffre offered no specifics regarding the sales. However, he has plenty to choose from.

The company has an estimated FFr15bn tied up in numerous shareholdings in other groups, including Bidermann, the textiles group, Compagnie Financiere de Suez, and Compagnie Generale des Eaux, the construction and communications group.

More immediate candidates for sale, however, are likely to be the FFr5bn or so of investments in non-listed companies accumulated over the past 20 years.

The sale of assets is not expected to affect the group's core businesses. This would appear to include Yves Saint Laurent, the cosmetics and luxury goods group, acquired controversially by Mr le Floch-Prigent. 'I think it is still group strategy to build up its health and beauty business,' said one analyst in Paris.

As for broader strategy, a stronger balance sheet should enable Elf to play its part in the government's privatisation programme.

Mr Jaffre described as 'strategic' his company's relations with Union des Assurances de Paris, the insurance group, and Renault. His comments hinted at a new set of cross-share-holdings when the two companies follow Elf to the auction block.

VME Group, the big construction equipment producer owned by Volvo of Sweden and Clark Equipment of the US, will move back into profit this year after losing Dollars 94m in 1992, said Mr Tuve Johannesson, president and chief executive.

Mr Johannesson attributed the recovery partly to the devaluation of the Swedish krone, but mainly to the restructuring of the group, which has reduced the workforce by 4,500 to just 6,500 over the past two years.

He was speaking on the eve of an announcement by VME and Japan's Hitachi Construction Machinery on an agreement to establish a joint venture in the rigid dumptruck business.

The two companies said in March they had signed a letter of intent to form the venture, which they see as a vehicle to strengthen their strategic positions in the construction and mining industries.

Today's announcement will disclose that VME will transfer its rigid dumptruck business to a new US-based company, Euclid-Hitachi Heavy Equipment.

Hitachi will take a 'substantial minority stake' in the new company in two steps, starting with a 19.5 per cent holding to be implemented on December 31, a day before the new venture becomes operational.

The agreement goes further than was at first suggested. Hitachi will also distribute VME's Volvo BM articulated dumptrucks and large wheel loaders in Japan. However, Mr Johannesson stressed that Hitachi and VME remained separate and were co-operating only in specific areas.