Banks lead the way lower

Ever since the flurry of building society demutalisations in 1997, pundits have predicting consolidation in the mortgage bank industry.

Without the scale to churn out products at low cost, smaller players such as Alliance & Leicester - down 19p at 473p - and Northern Rock - 8.75p weaker at 360.25p - have long been cited as the most obvious contenders for the mating game.

But over recent days talk of an agreed deal for Woolwich - off 2.5p at 254.5p - has refused to go away. An interested bidder cannot go hostile because it is protected from such action for a further two years.

Although its shares closed lower yesterday this was against the background of a weak banking sector hit by unfounded fears of a government windfall tax, and turnover reached a chunky 4m thanks to what dealers were describing as educated buying.

Ever since unconfirmed merger discussions with Alliance & Leicester broke down, Woolwich has been regarded as an attractive target.

On Wednesday its chief executive, John Stewart, refused to close the door on future merger talks as he announced interim figures.

While Bank of Scotland - 23.5p lower at 547 - has often been touted as a potential partner, such talk appears to be wide of the mark.

The story doing the rounds yesterday afternoon had Barclays - 59p easier at £15.56 - as the interested partner.

This could make sense. Woolwich would give Barclays a much-needed boast in the mortgage market and bolster its claims to be a "big bank".

Leading shares generally had a tough day undermined by weakness in the technology and banking sectors.

The FTSE 100 index ended 74.2 points lower at 6,317.1 - representing a five-week low - with investors paying little attention to news that interest rates remain on hold.

Technology stocks were under pressure from the outset. Initially unsettled by the weak close on the Nasdaq, which followed rumours of a Cisco Systems profit warning, they were then hit by a profit warning from US chip firm Kulicke & Soffa and speculation that Motorola had changed its outlook for mobile handset shipments.

Predictably, ARM Holdings, which derives most its revenue from mobile telephony, was the worst affected, shedding 87p to 631p. Optical chip outfit Bookham Technology was also hit, falling 229p to £36 as was Marconi, 55p weaker at 972p. Meanwhile, Sage Group slipped 39.5p to 492.5p, CMG lost 82p to £10.90 and Sema retreated 66p to 942p.

Eidos, the FTSE 250 company behind Lara Croft, managed to buck the weaker trend. It shares closed 16p better at 396p and once again the rise was related to hopes of a takeover from French company Infogrames.

But the nightmare for Telewest Communications investors continued.

The share shed a further 19.25p lower at 155.75p, despite news with interim figures that a shortage of set-top boxes will only delay its digital service by three months.

Among the second liners, photo-booth operator Photo-Me International, down 49p to 120p, was the talk of the session after it issued the statement which all investors dread - an accountancy-related profit warning.

On a lighter note, one City trader was left with a red face after acquiring 56m shares in concrete company RMC - down 7p to 738p.

The trade was immediately cancelled by the stock exchange authorities after the dealer owned up and said he had actually been trying to buy 5,600 RMC shares but had entered the decimal point in the wrong place.

Elsewhere, Telework Group made a solid debut on the stock market yesterday. Shares in the group, which supplies and develops software to the computer telephony and human resources industries, closed at 208p, up 63.5p from their issue price.