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London last week

12 June 2006 angelo coppola

The London market continued to weaken last week as central banks in Europe, Asia and South Africa (although not the UK) all raised their interest rates in order to curb inflationary pressures and investors risk appetite continued to wane.

Quentin Smith at OMAM in the UK reports that the Bank of England kept the benchmark interest rate unchanged for a 10th month as accelerating economic growth showed little sign of leading to higher inflation.

The rate remained at 4.5%, as has been widely anticipated. The decision contrasted with the European Central Bank, which last week raised its benchmark lending rate by a quarter percentage point for the third time since December, to 2.75%.

Over the week the All-Share Index lost 2.3%, led lower by a weak performance from midcaps (-4.5%). Large caps (-1.9%) slightly outperformed the broader market, while smaller companies (-2.1%) were broadly in line.

Just a handful of sectors ended the week in positive territory, including some consumer and healthcare areas, while basic materials accounted for the weakest performers on falling underlying prices.

Corporate activity continued apace, with GlaxoSmithKline (+0.5% to 1490p) offering $15bn for Pfizer's consumer unit. The bid was one of several, with Johnson & Johnson and Reckitt Benckiser also interested in acquiring the unit. Pfizer will decide by 23 June whether to sell the unit or spin it off to shareholders.

In the financial sector, Resolution (-0.5% to 696p) will pay 3.6bn to buy the UK life insurance units of Abbey National, owned by Santander Central Hispano. Resolution will raise 1.54bn in a rights issue to help finance the deal, as well as taking out loans worth 2.23bn.

Cadbury-Schweppes (-0.8% to 508p) warned that profit margins were unlikely to widen as much as expected this year as rising oil prices add to costs, although revenue growth would be toward the high end of the company's target range.

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