Allied suffers wine hangover

As the wider market moved higher in the wake of the Federal Reserve's latest rate cut, Allied Domecq was hit by heavy selling on fears that it could be become embroiled in another bidding war for an antipodean wine company.

Allied, maker of Beefeater Gin and Ballantine's whisky, recently won control of New Zealand's biggest wine maker, Montana, for $450m (£304m) after an acrimonious six-month battle with Australian brewer Lion Nathan.

At the time Allied was accused of overpaying for Montana and yesterday nervous investors sold the stock down 20p to 340p on fears it might make the same mistake this time with Australian wine group Petaluma.

This week Lion Nathan launched an A$222m (£75m) bid for control of the company. But during trading in Aus tralia overnight Petaluma shares surged as Goldman Sachs, Allied's financial adviser, started bidding for stock at levels above the offer price.

Allied said it was aware Lion had made an offer and Goldman was buying stock but added: "I can say at this time that their [Goldman] buying being linked with us is speculation only."

Meanwhile, the FTSE 100 fought back from a 100-point deficit to close 49.5 points higher at 4,881.8. An early markdown on the back of a profits warning from Canadian telecoms equipment maker Nortel gave way to brighter sentiment as Wall Street followed Tuesday's confident performance with further gains on the back of stronger than expected US non-manufacturing business numbers.

An upbeat trading statement from Misys, up 56.25p to 217.25p, and a fully underwritten fund-raising exercise by Colt Telecom, 21p better at 83p, underpinned sentiment. Across the market more than 2bn shares changed hands.

The banking sector made much of the running, with mortgage bank Northern Rock up 50.5p to 578.5p, continuing to benefit from Tuesday's trading statement, and HBOS rising 35p to 722p after JP Morgan said that the stock was trading at an unwarranted discount to its peers.

Unilever, the Anglo-Dutch consumer goods company, was also in demand after Deutsche Bank advised clients to buy. The broker believes the shares, which have fallen 9.3% since its disappointing pre-close update on September 19, are good value and Unilever will achieve its target of double-digit earnings growth this year. Unilever gained 7.5p to 515p.

But Vodafone fell back 0.25p to 149.5p as investors fretted over today's third-quarter subscriber figures. Deutsche Bank, one of Vodafone's biggest fans, forecast a fall in net additions from 3.04m to 2.4m. However, it said this was already factored into its forecasts and the average revenue per user trend would be more important.

The FTSE 250 ended 31.5 points higher at 5,057.5 with Carphone Warehouse rising 12.5p to 79.5p as bullish noises from the company sent short sellers scrambling to cover their positions. Over the past week Carphone shares have fallen sharply on speculation that it is about to issue a gloomy trading statement. However, a spokesman for the company said nothing could be further from the truth. "We are not putting out a trading statement because the only thing we could say is that the business continues to grow in line with expectations."

Analysts expect Carphone to generate £1.34bn of revenue this year and between £84m and £88m of earnings before interest, tax, depreciation and amortisation.

FKI, the engineer turned supply chain specialist, had a rough session amid renewed rumours that another profits warning was on the way. Its cause was not helped by downgrade from Deutsche Bank in a wide-ranging review of the European engineering sector.

Noting FKI's exposure to the US - 63% of sales last year - Deutsche cut its rating from buy to market perform and said there was a real risk that FKI would fail to achieve its profits forecast. At its July annual meeting the company warned that falling orders meant profits for the current year would be flat. FKI closed 6p weaker at 122.5p

Deutsche also adopted a more cautious stance on Charter, the highly indebted engineering conglomerate, down 20.5p to 98.5p, and Tomkins, 11.75p lower at 141.25p, because of their exposure to the slowing US economy.

Engineers were not the only stocks under pressure. Stockbrokers were on offer, too, after Charles Stanley, off 40p to 147.5p, warned that first-half profits would fall short of expectations. The news reverber ated round the sector, sending Collins Stewart down 20p to 286.5p and causing Teather & Greenwood, which many traders feel has a bloated cost base, to lose 11.5p to 64.5p.

Among the small caps Staffware, the business software group, advanced 55p to 210p on the back of a positive trading update. After a profits warning in July and disappointing interim figures in September, many investors questioned whether the loss-making company could meet its revenue forecasts. They were therefore surprised to learn that third-quarter sales had risen 7% year on year and its cash balance had grown to £14m from £12.9m.

Cedar, the software services group which issued a near-fatal profits warning a few weeks back, gained 6.25p to 19.5p. Traders attributed the move to bulletin board gossip about a bid for the company, institutional demand and rumours that Cedar is close to appointing a new broker to replace Merrill Lynch.

Following thewarning's appearance, Merrill slapped a "reduce" recommendation on Cedar and voiced concerns about its ability to meet working capital requirements.