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Friday Lunchtime Market: taxing times

There is little news to warm investors' hearts as the economic storm clouds gather and Tony Blair prepares for war talks with President Bush.

Shortly after 1pm the FTSE 100 had clawed back some ground but was still 31 points down at 3,547 while the techMARK was still a chilly 9 points down at 610.

Yesterday's news that the US economy grew by just 0.7% in the last quarter weighed heavy on investors' minds, especially as the National Institute for Economic and Social Research cut its forecast for economic growth in the UK from 2.5% to 2.2%. The revision by the respected think tank adds to the pressure on the chancellor who forecast growth of 2.5-3% this year in his pre-Budget report. Gordon Brown may need to raise taxes further as a result, it is feared.

Morrisons (MRW), down 5p to 164.5p, attempted to provide a distraction as it set the clock ticking in its bid for Safeway by posting its offer document to shareholders. Safeway (SFW), down 2.75p to 313.25p, now has 14 days to issue a formal response while Morrisons has 60 days to pull a deal together, although a rival bidder such as Philip Green is likely to trump the offer.

Telecoms and techs are weak in the wake of Nasdaq's 36-point loss last night.

Sage (SGE) sagged 6.75p to 119p, BT (BT.A) dropped 4.75p to 165.75p, Vodafone (VOD) slipped 3p to 107p, mmO2 (OOM) dipped a penny at 45.75p and Misys (MSY) fell 7.5p to 175.5p.

Positive broker reaction to yesterday's results enhanced Rio Tinto (RIO) by 8p to £11.28 and gave collateral support to Xstrata (XTA), up 2.5p to 532.5p.

Defensives British American Tobacco (BATS), up 3p to 568p, and Scottish Power (SPW), up 3.25p to 346p, benefited from this morning's bear run.

Pharmaceuticals are solid with positive press comment boosting GlaxoSmithKline (GSK) by 19p to £11.34 and broker downgrades having little impact on AstraZeneca (AZN), up 4p to £20.82.

Positive broker comment enhanced BAA (BAA) by 7.5p to 449.5p and Hays (HAS) by 1.25p to 77.25p.

War and terrorism worries continue to undermine British Airways (BAY), down 4p to 112p, P&O Princess Cruises, down 14p to 389p, and Eurotunnel (ETL), down 0.75p to 33.5p.

Financials struggled but solvency concerns temporarily waned as investors absorbed reports that the Financial Services Authority is taking a flexible approach to implementing solvency rules. Aviva, up 7p to 396p, was the main beneficiary with Prudential firming 0.5p to 375.5p although Legal & General shed 2.5p to 74.5p.

Other financials edged down with Schroders 16.75p off at 404.5p, Amvescap down 9.5p to 336.25p and Barclays retreating 8p to 342p.

The FTSE 250 was under pressure, down 26 to 3,995, as Schroder Salomon Smith Barney downgrading the housebuilding sector.

This pushed Wilson Bowden down 25p to 673.5p, Westbury off 14.5p to 240p, Persimmon back 12p to 406p and reversed Barratt Developments 16.25p to 356.25p and Bellway 13p to 447.5p.

Bid speculation have ushered in a wave of buyers at Securicor, up 3.75p to 79p.

Premier Oil headed the FTSE 250 risers with a 1.5p gain to 27.25p as oil price rises support.

Investors Chronicle buy recommendations supported Mears by 0.5p to 72p, Angus & Ross by 0.25p to 5p and Coral Products by 2.5p to 48.5p.

Among smaller companies Slimma (SLM) shed 6.5p to 41.5p after the ladieswear manufacturer warned that first half profits would be hit by the cost of reorganising its production facilities, prompted by a fall in demand from high street shops.

Topnotch (THC) slipped 0.75p to 5p as the health clubs operator arranged new banking facilities but warned that trading was not improving.

Alpha Airports soared 5p to 54p on news of in-line second half trading.

News of bid talks and improved first quarter listening figures pushed up Forever Broadcasting by 5p to 38.5p.

Alphyra slumped 25p to 151p on news that talks with First Data Corp have ceased.

Marchpole jumped 0.25p to 3.875p after it revealed significantly improved trading for the third quarter.

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