Firm Shell, drugs lift FTSE, but Unilever slips

Fri May 2, 2003 08:26 AM ET By Steve Slater

LONDON, May 2 (<a href=reuters.com>Reuters) - A sharp fall by Anglo-Dutch consumer products giant Unilever ULVR.L helped cut gains for Britain's leading shares on Friday, as investors continued to fret about the brittle economy.

But support was provided by strong oil stocks after record profits from Shell SHEL.L and firm drugs stocks such as Shire Pharmaceuticals SHP.L after this week's buoyant results.

By 1200 GMT the FTSE 100 index .FTSE was up 13.1 points, or 0.3 percent, at 3,893.2, back from an early peak of 3,911.1. Volume was light ahead of a three-day UK holiday weekend and doubts about near-term direction.

Unilever shares fell 6.8 percent after the company reported a slim two percent rise in first-quarter profits and said earnings and sales of its top brands fell short of forecasts -- hit by poor sales in March, especially in North America.

Analysts said the figures heightened the twin concerns that consumer spending has slowed and corporate earnings growth in the first quarter has mainly been on the back of reduced expectations and cost cutting, rather than underlying growth.

"There's still caution about earnings forecasts for this year and next. While that scepticism prevails, investors will be quite cautious about re-rating markets that are already trading above long-term averages," said Alex Scott, analyst at Seven Investment Management.

Scott said a rally by equities in April was achieved despite continued weak economic data. "Unless we see a pick up soon it will be hard for markets to pick up from here," he said.

After weaker-than-expected U.S. manufacturing and jobs numbers and signs of a cooling in the UK housing market, the release of U.S. non-farm payroll data at 1230 GMT is likely to dictate the early mood on Wall Street.

BUMPER OIL, DRUGS PROFITS

Shell was the latest oil major to report record quarterly profits, as the war in Iraq, civil unrest in Nigeria and strikes in Venezuela stoked crude oil prices.

Shell added one percent after its first quarter net profit adjusted for one-off items almost doubled to $3.9 billion, above the range of analysts' expectations. BP BP.L rose 0.9 percent.

But defence contractor BAE Systems BA.L fell 4.6 percent, which dealers came after stockbroker Cazenove cut its rating on the company to "reduce".

Among smaller companies, holiday firm MyTravel MT.L leapt 30 percent after it reported a drop in bookings but said it saw signs of recovery as war in Iraq ends, which also helped lift First Choice FCD.L shares three percent.

(Additional reporting by Keiron Henderson)