MOST senior managers are ignorant about the relevance to their organisations of the government's main training initiatives, a survey published today claims.

Managers needed evidence that initiatives such as National Vocational Qualifications would deliver positive results, according to the joint survey of 542 managers, all at board level or equivalent, compiled by the Institute of Management and employment services company Manpower.

Only a third of managers believed that NVQs would significantly alter their employees' attitudes towards training.

The government has just launched a big advertising campaign for Investors in People, a standard that assesses how far a company's training meets its business needs, but companies are still sceptical of what the standard can do for their profits.

Training for Recovery? IM, 2 Savoy Court, Strand, London WC2R 0EZ. Free.

even after sterling's devaluation last autumn - so many things cost less over there than at home.

Late last year McKinsey, the international management consultancy, set out to answer the question by analysing the main factors which determine retail prices on either side of the Atlantic.

Armed with a shopping list of 268 similar products, McKinsey compared prices at outlets in the London and Chicago areas. It found that on average prices were 31.7 per cent higher after tax in Britain than in the US.

The difference was calculated when the pound was worth Dollars 1.60, and would be nearer 22 per cent at today's exchange rate. Even so, some individual examples remain striking. Frozen chickens cost four times more per pound in Britain than in the US, while some DIY items were three times dearer.

About 50 products were cheaper in the UK. Many of these were British or other European brands, such as Laura Ashley, Body Shop, Benetton and Jaeger. But Heinz baked beans, of which Britain is traditionally world champion consumer, also cost 35 per cent less than in the US, where Heinz has its headquarters.

An analysis of retailers' cost structures identified four main reasons why prices were often higher in Britain than in the US - although their relative importance varied widely between products. The four factors are tax, property costs, productivity and trade prices.

Britain's 17.5 per cent value added tax, charged on most products except food, baby clothes and a few other items, is more than double the 7.25 per cent sales tax in the Chicago area.

The study found tax accounted for half of the 24 per cent difference in the price of a pair of cotton briefs and for more than a third of the 29 per cent difference in the price of a Walkman compact disc player.

However, tax was responsible for as little as one sixth of the price differentials for doughnuts, ice-cream and hamburgers sold in fast-food outlets. Yet these were found to cost between 48 per cent and 112 per cent more in Britain than in the US.

Prime retail selling space cost only a third as much in the US as in Britain. That was one of the main reasons for the higher UK prices of fast food and clothing and was particularly important for department stores.

However, it accounted for a smaller proportion of the price differentials on electrical and DIY goods. Dearer space costs explained only a quarter of the 63 per cent difference in the retail price of a standard 16ft ladder.

On average, retailers' productivity was 23 per cent higher in the US than in Britain, reflecting lower wage costs and higher sales per employee. US stores generally were more advanced in their use of automation, although in many sectors sales per square foot of store space were comparable with the UK.

Profitability varied widely across sectors, but was often higher at the level of the individual store in the US than in Britain. The main exception was grocery retailing, where UK supermarkets had higher returns on sales and capital than US chains, as well as bigger sales per square foot and per employee.

However, the study says these advantages would not be large enough to safeguard UK supermarkets' profitability if their prices fell to US levels. If that happened, they would show an average 20 per cent negative return on capital, compared with a recent average 27 per cent positive return.

The prices at which US retailers purchased many products were found to be lower than in Britain. The study found particularly big differences in DIY products, electrical goods and food.

The Common Agricultural Policy helps to hold up the price of food in the UK. The ingredients for one mass-market line of grocery products cost 37 per cent more in Britain than in the US, where manufacturing costs were also lower. Together, these two factors contributed to a UK trade price 23 per cent higher than in the US.

McKinsey also believes that the prices of some products, such as camcorders, home computers and software for video games, are higher in Britain because a less mature market has enabled manufacturers to earn fatter profit margins.

Other reasons for transatlantic price differentials are American consumers' traditionally greater emphasis on price and comparative shopping, and the greater diversity of retail outlets in the US, where the industry is less concentrated than in Britain.

The study found prices of the same products varied much more widely around Chicago than London but McKinsey says that when comparing UK and US prices it was careful to ensure that the types of store surveyed in each country were similar.

Some reasons for transatlantic price differentials, such as tax levels and the cost of prime retail space, are deep-rooted and unlikely to change quickly.

However, the study argues that Britain will be increasingly influenced by competitive trends from across the Atlantic, notably the growth of discount stores and greater price sensitivity among consumers.

That could require big adjustments by established chains.

The study says: 'UK retailers will have to bring their costs and productivity more into line with those of their US counterparts to avoid a sharp decline in profitability.'

Further information available after July 5 from Gillian Lacey-Solymar, McKinsey & Co, 74 St James's Street, London SW1A 1PL. Tel: 071 839 8040.

------------------------------------------------------------------------ GREAT DIFFERENCES PER SECTOR ------------------------------------------------------------------------ Brand Product US Price UK price Difference Pounds* Pounds** as percent of US price ------------------------------------------------------------------------ CLOTHING ------------------------------------------------------------------------ JH Collectibles Ladies tartan jacket 127.36 239.00 87.7 Unbranded Acrylic black pullover 13.40 25.00 86.6 Unbranded Cotton T-shirt 4.52 8.32 83.9 Playtex Bra 7.37 13.50 83.1 ------------------------------------------------------------------------ DIY ------------------------------------------------------------------------ Unbranded 10ft of 0.019 gauge gutter 0.21 0.71 241.7 Unbranded 25ft measuring tape 5.41 17.65 226.3 Unbranded White toilet seat 3.22 9.99 209.8 Unbranded Copper elbow pipe fitting 0.10 0.28 178.5 ------------------------------------------------------------------------ ELECTRICAL ------------------------------------------------------------------------ JVC HR D720 video recorder 133.73 299.00 123.6 JVC HR DX22 video recorder 157.52 319.99 103.1 Minolta 9xi video camera 502.70 999.99 98.9 Nikon 9x25 binoculars 60.19 109.99 82.7 ------------------------------------------------------------------------ FAST FOOD ------------------------------------------------------------------------

McDonalds Cheeseburger 0.46 0.94 103.2 Burgerking Cheeseburger 0.60 0.98 64.3 Burgerking Whopper without cheese 1.30 1.99 53.0 Baskin Robbins 2 scoops vanilla ice cream 1.33 1.80 34.9 ------------------------------------------------------------------------ FOOD ------------------------------------------------------------------------ Unbranded Frozen chicken per lb 0.24 0.96 304.2 Unbranded Chicken breast fillets per lb 0.93 3.36 260.8 Unbranded Whole chicken per lb 0.31 0.89 190.6 Unbranded Cucumber 0.21 0.56 158.8 ------------------------------------------------------------------------ COSMETICS ------------------------------------------------------------------------ Revlon Eye liquid 3.85 9.50 146.5 Revlon Nail varnish 2.51 5.50 118.8 Clinique Clarifying lotion 12oz 9.72 20.50 110.9 Clinique Clarifying lotion 6oz 6.37 12.50 96.3 ------------------------------------------------------------------------ TOYS ------------------------------------------------------------------------ Toxic Crusaders Hideous Hovercraft 6.03 13.98 132.0

WWF Wrestlemania ring 8.71 19.75 126.8 Scalextric Formula One with sound 40.21 79.93 98.8 Berchet Tipony Rocker 15.41 23.99 55.7 ------------------------------------------------------------------------ *Converted at Dollars 1.60 to the Pounds. **Including VAT ------------------------------------------------------------------------

UNEMPLOYMENT is costing the National Health Service more than Pounds 70m a year, says a report published today by the Office Of Health Economics, a research body funded by the pharmaceutical industry. The cost to general-practitioner and pharmaceutical services is put at Pounds 40.1m and the loss in revenue to the NHS in prescription charges at Pounds 30.6m. The report says unemployment leads to illness through a combination of stress, poverty and unhealthy living.

THE profitability of Britain's investment management houses reached a five-year high last year despite rising competition, says a a survey of fund managers.

The survey of 38 managers with a total of more than Pounds 400bn in assets was conducted by Price Waterhouse Management Consultants. Profitability expressed as a percentage of revenue was an average of 18.1 per cent before tax across the industry. This reflected efficiency gains and an increase in funds committed to management.

However, the survey found wide variations in the profitability of different products. Personal equity plans, a staple product of retail financial services firms, produced on average losses for firms offering them equal to 14.9 per cent of their income.

Price Waterhouse suggests that the relatively small size of individual Pep accounts mean they may never be profitable. In key respects they resemble products offered to private clients whose average account is nearly 10 times that of the average Pep. 'Providing a private-client level of service to Pep investors cannot be profitable,' Price Waterhouse said.

The most profitable product category for the industry is the investment trust, which produced an average profit of 42 per cent of revenue, followed by pension funds and charities which produced returns of 24 per cent. Pooled insurance funds produced returns of 19 per cent. The study found that insurance companies in particular have been slow to adapt the cost structure of their fund management operations. They are characterised by antiquated computer systems and high general administration costs.

Price Waterhouse Investment Management Survey 1993 - Business Dynamics. PW Management Consultants, Milton Gate, 1 Moor Lane, London EC2Y 9PB.

THE MAIN reaction in Hong Kong to the news in Britain about business donations to the Conservative party has been one of bemusement.

This stems from two factors. First, the sums involved are, by the colony's standards, trivial. The other factor stems from its status; Hong Kong is a British colony and most of its population are British subjects.

Mr Li Ka-Shing's alleged Pounds 100,000 donation to the Tory party pales into insignificance when compared with the Pounds 17m he has donated to build a university in his home town of Shantou, on the south China coast.

Many of Hong Kong's leading businessmen, including Mr Li, are British citizens, or, like Mr TT Tsui - who numbers Mr Michael Heseltine, Mr Norman Lamont and Mr David Mellor among his friends - holders of British Dependent Territories passports.

The late YK Pao, who used to play bridge with Mr Deng Xiaoping, China's senior leader, was an unquestioning fan of Lady Thatcher, and was given a knighthood.

Being Chinese is not, even in these days, wholly synonymous with being anti-British, says Mr David Tang, an Anglophile businessman with impeccable mainland connections.

'There are many of us who have made a lot of money in Hong Kong and believe that this has not been unconnected with the stable government the UK has afforded us,' he explains. 'That's why I give money to the Conservative party.'

Mr Tang also points out that most of the money flowing to the Tories from Hong Kong Chinese businessmen results from their observance of 'face'. If a friend asks for money the natural reaction is to give it, he says. 'My grandfather gave Pounds 100,000 to the RAF museum at Hendon. Now, he would not have known what a Spitfire looked like if he fell over one. But Sir Jack Cater (former Hong Kong chief secretary) asked him for a donation because he had a friend who ran the museum. So he gave.'

What gives some piquancy to the issue is the extent to which many of the Tory party's former donors have deserted the cause. Even before Governor Chris Patten's arrival a year ago many of the colony's leading lights were moving closer to Beijing.

This is no better illus-trated than by Mr Li and Mr Tsui. The former is assiduously cultivating top mainland connections and Mr Tsui has recently started an investment company which marries Hong Kong money with Beijing's leading government ministries.

OPPOSITION to a call by President Ibrahim Babangida for a fresh presidential election mounted yesterday amid continuing confusion about Nigeria's political direction.

Gen Babangida on Saturday confirmed the annulment of the June 12 poll and ordered a rerun, while promising to keep to the scheduled handover to civilian rule on August 27.

According to new conditions he laid down, both Mr Moshood Abiola, leader of the Social Democratic party (SDP) and winner of the aborted poll, and his rival, Mr Bashir Tofa of the National Republican Convention (NRC), would be ineligible to stand. He said presidential candidates have to have been members of their party for at a least a year - which disqualifies Mr Abiola - and over 50, which rules out Mr Tofa, who is 45.

Moroccan opposition groups made strong gains at the expense of the five centrist parties in the first phase of parliamentary elections, Reuter reports from Rabat. However, no party won an outright victory.

OVER THE last 20 years the balance of opinion on macroeconomic policy in the UK has shifted, with the state of the cycle and the latest experience, from naive Keynesian, to monetarist, to international monetarist (shown in support for membership of the ERM) and, it increasingly seems, back to naive Keynesianism. No other country seems as giddy, not even the US.

The great puzzle about this debate is that there is so little reason to suppose it matters. Macroeconomic policy works by expanding nominal demand and, thereby, nominal gross domestic product. But the evidence strongly confirms one of the best established propositions in economics, namely, the neutrality of money. The growth of nominal demand has no identifiable relationship to the growth of real output in the longer term.

The chart summarises the experience of the main OECD countries over the past 20 years. It shows that there are countries with low growth of nominal GDP and modest growth of real GDP, such as Switzerland, Germany and the Netherlands. There are countries with high growth of nominal GDP and high growth of real GDP, such as Italy and Spain. Japan had modest growth of nominal GDP, but exceptionally rapid growth of real GDP. Meanwhile, the UK would have enjoyed a growth miracle, if rapid growth of nominal GDP were sufficient to create one: the growth of UK nominal GDP was the third highest, but the growth of its real GDP the third lowest.

One conclusion is the obvious one that growth is determined not by macroeconomic tinkering, but by savings and investment and, as eastern European experience shows, by the efficiency with which resources are used. A second conclusion is equally obvious. If the chancellor of the exchequer should succumb, for electoral reasons, to the temptation of 'going for growth', cheered on by commentators who should know better, he will generate a short-term boom followed by another slump. Such policies would not raise long-term economic growth. They would merely reduce Mr Kenneth Clarke's reputation ex post to the level of Lord Barber's.

A third conclusion goes in the opposite direction. Low inflation is certainly not, as the Bundesbank seems sometimes to suggest, a sufficient condition for rapid economic growth. It may well not even be a necessary condition for such growth. The most important argument against inflation is ethical. Inflation is taxation by stealth, a fraud on the body politic. It should be banned as surely as any similar malfeasance - stealing from pensions funds, for example, which it closely resembles.

Inflationists always have new arguments. The argument of the moment is that it would be impossible to restart inflation even if governments were to do their best, or rather their worst. In the short to medium term, this argument is perfectly plausible. This is not because of the intensity of global competition, which might have a once-and-for-all effect on the level of prices, but not on the longer-term trend. The sounder argument is that it is difficult to start inflation in a modern economy without expanded bank lending as well. But the commercial banks of the industrial countries are, for the present, either unable or unwilling to lend much more. The main and rather startling exception is in Germany.

It may be difficult to start inflation without co-operation from banks, but it is not impossible. If pundits think UK inflation is dead, even though it is still 3-4 per cent a year, they should advise the government to finance its entire deficit by borrowing from the Bank of England. If he were to do so, Mr Clarke could save about Pounds 4bn a year in interest payments on his Pounds 50bn in projected annual borrowing. The reason nobody in fact recommends more than a limited amount of underfunding is not far to seek. People are not so foolish that they believe their own propaganda. Additional cash of Pounds 50bn a year would soon lead to a roaring inflation. Inflation is not dead. It is merely resting. There is no good reason, bar short-term electoral convenience, to wake it up once more.

------------------------------------------------------------------------ INTERNATIONAL ECONOMIC INDICATORS: MONEY AND FINANCE ------------------------------------------------------------------------ This table shows growth rates for the most widely followed measures of narrow and broad money, a representative short-and long-term interest rate series and an average equity market yield. All figures are percentages. ------------------------------------------------------------------------ UNITED STATES ------------------------------------------------------------------------ Narrow Broad Short Long Equity Money Money Interest Interest Market (M1) (M2) Rate Rate Yield ------------------------------------------------------------------------ 1985 9.0 8.9 8.00 10.59 na 1986 13.5 8.3 6.49 7.67 3.43 1987 11.6 6.5 6.82 8.39 3.12 1988 4.3 5.2 7.65 8.84 3.61 1989 1.0 3.9 8.99 8.49 3.43 1990 3.7 5.3 8.06 8.54 3.60 1991 5.9 3.3 5.87 7.85 3.21 1992 12.4 2.0 3.75 7.00 2.95 2nd qtr. 1992 11.7 1.7 3.95 7.37 2.97 3rd qtr. 1992 12.6 1.6 3.35 6.61 2.96 4th qtr. 1992 14.3 1.8 3.55 6.73 2.94 1st qtr. 1993 11.9 0.5 3.20 6.26 2.81 June 1992 11.1 1.3 3.92 7.26 3.00 July 11.8 1.4 3.44 6.84 2.96 August 12.4 1.6 3.37 6.59 2.95 September 13.5 1.8 3.24 6.41 2.98 October 14.4 2.0 3.32 6.58 3.02 November 14.4 1.8 3.66 6.86 2.94 December 14.2 1.5 3.67 6.75 2.87 January 1993 13.4 1.0 3.26 6.59 2.87 February 11.5 0.2 3.18 6.26 2.80 March 10.7 0.1 3.17 5.97 2.76 April 10.8 0.3 3.15 5.96 2.81 May 12.1 1.1 3.14 6.02 2.81

------------------------------------------------------------------------ JAPAN ------------------------------------------------------------------------ Narrow Broad Short Long Equity Money Money Interest Interest Market (M1) (M2+CDs) Rate Rate Yield ------------------------------------------------------------------------ 1985 5.0 8.4 6.62 6.51 na 1986 6.9 8.7 5.12 5.35 0.84 1987 10.5 10.4 4.15 4.64 0.55 1988 8.4 11.2 4.43 4.77 0.54 1989 4.1 9.9 5.31 5.22 0.48 1990 2.6 11.7 7.62 6.91 0.65 1991 5.2 3.6 7.21 6.37 0.75 1992 4.5 0.6 4.28 5.25 1.00 2nd qtr. 1992 5.7 1.2 4.56 5.63 1.04 3rd qtr. 1992 3.2 -0.0 3.90 5.10 1.06 4th qtr. 1992 2.0 -0.5 3.67 4.78 1.03 1st qtr. 1993 1.8 -0.2 3.29 4.34 1.00 June 1992 3.2 0.9 4.49 5.55 1.06 July 2.9 0.2 4.19 5.26 1.10 August 3.7 0.3 3.75 5.03 1.12 September 2.9 -0.5 3.74 4.99 0.98 October 2.5 -0.6 3.71 4.90 1.04 November 1.6 -0.6 3.65 4.76 1.05 December 1.9 -0.4 3.64 4.70 1.00 January 1993 2.4 -0.3 3.59 4.55 1.03 February 2.3 0.1 3.15 4.31 1.01 March 0.9 -0.4 3.13 4.19 0.97 April 2.4 0.5 3.08 4.42 0.85 May 4.0 1.4 3.09 4.64 0.82

------------------------------------------------------------------------ GERMANY ------------------------------------------------------------------------ Narrow Broad Short Long Equity Money Money Interest Interest Market (M1) (M3) Rate rate Yield ------------------------------------------------------------------------ 1985 4.3 5.1 5.45 6.94 na 1986 10.0 8.3 4.64 5.90 1.79 1987 9.0 7.3 4.03 6.14 2.21 1988 9.7 6.4 4.34 6.46 2.61 1989 6.3 5.8 7.11 6.94 2.22 1990 4.5 4.5 8.49 8.71 2.11 1991 5.1 5.6 9.25 8.44 2.38 1992 7.1 8.2 9.52 7.77 2.45 2nd qtr. 1992 6.4 7.9 9.76 7.96 2.26 3rd qtr. 1992 6.6 8.8 9.72 7.88 2.53 4th qtr. 1992 10.7 9.6 8.98 7.34 2.67 1st qtr. 1993 9.6 7.5 8.31 6.87 2.42 June 1992 6.6 8.2 9.75 7.97 2.27 July 5.5 8.4 9.78 8.01 2.37 August 6.1 8.7 9.88 7.99 2.60 September 8.3 9.3 9.50 7.65 2.62 October 8.5 10.4 8.95 7.38 2.72 November 11.2 9.7 8.94 7.36 2.66 December 12.5 8.7 9.03 7.29 2.64 January 1993 9.5 7.7 8.60 7.10 2.58 February 9.2 7.3 8.39 6.94 2.43 March 10.0 7.6 7.98 6.59 2.27 April 9.1 8.7 7.92 6.63 2.23 May 9.3 8.4 7.52 6.80 2.27

------------------------------------------------------------------------ FRANCE ------------------------------------------------------------------------ Narrow Broad Short Long Equity Money Money Interest Interest Market (M1) (M3) Rate Rate Yield ------------------------------------------------------------------------ 1985 6.2 7.4 10.03 11.74 na 1986 6.9 6.8 7.79 8.74 2.65 1987 4.1 9.9 8.26 9.46 2.75 1988 3.9 8.4 7.94 9.08 3.69 1989 8.1 9.6 9.39 8.79 2.88 1990 3.6 9.0 10.32 9.92 3.19 1991 -4.7 2.7 9.62 9.03 3.58 1992 1.4 5.5 10.36 8.57 3.55 2nd qtr. 1992 -1.8 4.9 10.04 8.66 3.39 3rd qtr. 1992 -0.2 4.8 10.58 8.90 3.67 4th qtr. 1992 0.1 5.2 10.77 8.26 3.72 1st qtr. 1993 0.3 4.7 11.83 7.66 3.38 June 1992 -1.8 4.9 10.11 8.73 3.47 July -0.5 5.3 10.23 8.90 3.69 August -1.2 5.3 10.39 9.06 3.71 September -0.2 4.8 11.12 8.75 3.61 October 1.9 6.3 11.12 8.43 3.83 November -0.4 6.1 9.77 8.14 3.70 December 0.1 5.2 11.35 8.20 3.64 January 1993 0.9 4.9 12.16 7.93 3.58 February 0.6 5.0 12.12 7.76 3.40 March 0.0 4.7 11.27 7.33 3.19 April -2.0 3.8 9.06 7.14 3.25 May 7.64 7.16 3.39

------------------------------------------------------------------------ ITALY ------------------------------------------------------------------------ Narrow Broad Short Long Equity Money Money Interest Interest Market (M1) (M2) Rate Rate Yield ------------------------------------------------------------------------ 1985 13.2 13.5 14.34 13.71 na 1986 10.5 8.2 13.25 11.47 1.41 1987 10.4 9.8 11.32 10.58 1.94 1988 7.8 6.9 11.24 10.54 2.71 1989 7.1 8.2 12.41 11.61 2.46 1990 9.3 9.1 11.98 11.87 2.84 1991 7.3 8.0 11.83 13.20 3.45 1992 6.9 7.5 13.86 13.29 3.63 2nd qtr. 1992 9.7 9.3 12.58 12.82 3.43 3rd qtr. 1992 6.0 6.9 16.14 13.83 4.02 4th qtr. 1992 2.9 5.9 14.64 13.84 3.68 1st qtr. 1993 2.8 6.2 11.88 13.13 3.04 June 1992 10.0 9.6 13.23 13.14 3.34 July 7.5 8.0 15.36 13.65 3.78 August 5.4 6.5 15.27 13.71 3.94 September 5.1 6.1 17.82 14.14 4.35 October 5.7 7.3 15.53 14.36 3.95 November 2.8 5.9 14.53 13.48 3.48 December 0.5 4.5 13.90 13.66 3.61 January 1993 2.2 5.5 12.73 13.46 3.26 February 2.9 6.3 11.51 13.03 3.01 March 3.4 6.8 11.41 12.92 2.86 April 1.9 5.7 11.48 13.13 2.76 May 10.80 12.50 2.53

------------------------------------------------------------------------ UNITED KINGDOM ------------------------------------------------------------------------ Narrow Broad Short Long Equity Money Money Interest Interest Market (M0) (M4) Rate Rate Yield ------------------------------------------------------------------------ 1985 4.7 13.2 12.32 11.03 na 1986 4.0 15.3 11.02 9.97 4.35 1987 4.7 14.6 9.77 9.52 3.60 1988 6.8 17.0 10.41 9.69 4.48 1989 5.9 17.5 13.96 10.30 4.36 1990 5.3 16.0 14.82 11.53 5.07 1991 2.4 8.2 11.58 10.04 4.97 1992 2.3 5.2 9.73 9.09 4.91 2nd qtr. 1992 2.2 5.3 10.28 9.21 4.78 3rd qtr. 1992 2.4 5.2 10.39 9.21 5.21 4th qtr. 1992 2.7 4.4 7.68 8.45 4.64 1st qtr. 1993 4.4 3.4 6.43 7.97 4.35 June 1992 1.5 5.2 10.03 9.15 4.82 July 2.6 5.6 10.21 9.08 5.15 August 2.5 5.4 10.43 9.37 5.33 September 2.2 4.7 10.54 9.18 5.14 October 2.4 5.1 8.49 8.69 4.83 November 3.0 4.3 7.32 8.27 4.60 December 2.8 3.7 7.24 8.38 4.49 January 1993 3.9 3.2 7.04 8.33 4.46 February 4.5 3.3 6.23 7.97 4.36 March 4.9 3.6 6.04 7.65 4.24 April 4.8 3.5 6.01 7.81 4.08 May 3.3 3.9 6.02 8.08 4.04 ------------------------------------------------------------------------ Monetary growth rates: show the percentage change over the corresponding period in the previous year, and are positive unless otherwise stated. All growth rates refer to the seasonally adjusted series except for Japan and Italy. German monetary statistics now form a continuous pan-German series. Monetary data supplied by Datastream and WEFA from central bank sources. Interest rates: short-term, period averages of US - 90-day commercial paper, Japan - 3-month certificates of deposit, Germany - 3-month Fibor, France - 3-month Pibor, Italy - 3-month Euro-lira, UK - 3-month Libor; long-term, period average yields on 10-year benchmark government bonds. Interest rates supplied by Datastream. Equity market yield: period averages of the gross dividend yield on the relevant FT-A world index. ------------------------------------------------------------------------

MR Mickey Kantor, US Trade Representative, is known to be a fighter as well as 'a man who can bring people together in a crisis', according to an official profile. These qualities will be drawn upon this week.

The US and Japan are committed to agree a broad framework for bilateral trade and economic issues before the second meeting between President Bill Clinton and Prime Minister Kiichi Miyazawa on July 5. Officials from both sides locked horns in negotiation yesterday, the second set of meetings this month.

In spite of recent signs of some moderation on the US side, the two countries remain wide apart on a number of issues and the chances for such a framework to be agreed in the time left look increasingly slim.

The most problematic remains the US insistence that benchmarks should be set to measure progress in opening Japan's markets to imports and reducing its trade surplus.

The US is urging Japan to reduce its current account surplus from 3 per cent of GNP (it is expected to reach Dollars 150bn this year) to between 1 and 2 per cent of GNP within three years.

US pressure on Japan to set measurable results has raised the temperature in Tokyo as has Sir Leon Brittan, the EC's trade commissioner, who last week backed the US demand for Japan to cut its trade surplus.

A young Japanese television reporter reflected the antagonism felt towards US insistence on targets in a question put to Mr Kantor when he visited Tokyo last week: 'Would it be acceptable to you,' the reporter asked, 'if Japan or any other country sets targets for reducing the US budget deficit and threatens to retaliate against you?'

The question is moot, since the US budget deficit, and the need for US citizens to save more and consume less, have also been identified as important contributors to international trade tensions.

The Japanese argue that measuring results is unrealistic since Japan is a free-market economy in which the government can do little to influence the course of trade.

'Will the US tell its consumers not to buy so much foreign goods?' asks a Foreign Ministry official close to the bilateral talks. 'Just as it cannot do that, so we cannot influence our economic activity to that extent.'

The problem with this argument is that for many in the US it lacks credibility, since there is widespread evidence in Japan of an unusually high level of government management of the economy:

'There isn't a grain of rice in Japan that isn't managed,' says one US businessman with extensive experience in Tokyo.

The recent history of US-Japan trade relations suggests that foreign pressure - called 'gaiatsu' in Japanese - and the setting of targets do produce results.

In the US-Japan semiconductor agreement, a 20 per cent market share for foreign makers was achieved after a concerted effort by trade officials, and private Japanese and US companies alike, despite Japanese insistence that they were never committed to attaining that goal.

In the auto parts industry, Japanese authorities have rejected US assertions that Japan promised to buy Dollars 19bn worth of US auto parts by 1994. But as the US increased the pressure, Japanese car makers have been stepping up their procurement of US-made auto parts.

Japanese officials protest that trade should not be managed in that way but left to market forces. Other trading partners protest that as Japan has bowed to US pressure, so trade has been diverted at their cost.

But many foreigners doing business in Tokyo see a strong need for government intervention to overcome ingrained business practices which tend to favour domestic producers: 'In Japan, there are very close links between companies that do business together,' says Mr Yoshikazu Hori, president of Cray Research Japan, the supercomputer company.

Cray received orders from private Japanese companies after government pressure was applied.

The Japanese authorities also accept that more needs to be done to improve transparency in the country's market and open the country further to imports. They would prefer to do so in a constructive manner, without the threat of retaliation. Discussions would be a two-way process and disputes would be put before multilateral forums such as the Gatt.

So far, Japan has colonised the moral high ground by insisting that any proposals with a whiff of managed trade are unacceptable. In this, they will win the support of other trading partners, and most serious trade economists. But if they are determined to resist US demands for measurable results on the grounds that Japan is a free market economy, the country's bureaucrats will have to do much more than say so.

SUBSTANTIAL liberalisation of international farm trade must be 'a central and essential part' of a successful Uruguay Round deal, ministers from leading farm exporting countries said in Bangkok yesterday at the end of a two-day meeting of the Cairns Group.

'We will not be put in a position of being sidelined,' warned Mr Peter Cook, Australia's trade minister: 'The Uruguay Round will not be a done deal until all countries sign on.' He and two other Cairns ministers flew to Tokyo to present their 'Bangkok declaration' to Prime Minister Kiichi Miyazawa before next week's summit of the Group of Seven industrial nations.

It is hoped the G7 will be able to agree on liberalisation of trade in manufactures and services, allowing long-stalled negotiations on the Uruguay Round to resume in Geneva among all 111 contracting parties to the General Agreement on Tariffs and Trade.

Cairns ministers warned that if the G7 meeting failed to make the necessary breakthrough, the Uruguay Round 'could be jeopardised simply because of lack of time'.

For the past two years, progress in the Uruguay Round has been stalled as the US and EC wrangled over farm trade reform. Since the bilateral agreement at Blair House in Washington last November, talks have broadened, with the US, the EC, Japan and Canada seeking a big package of tariff cuts across manufactured goods and services. They have hoped this package could be used to jump-start the Uruguay Round negotiations.

Recent momentum in these four-way market access talks almost stalled last week in Tokyo when ministers failed to agree a package to be presented to the G7 summit. They have called a special ministerial meeting in Tokyo for July 6 - on the eve of the G7.

The 14-member Cairns group, which includes countries as diverse as Hungary, Argentina, Thailand and Australia, yesterday called on the G7 to improve market access for their farm exports, severely disrupted by protection in the US and the EC.

Farm exports from the group have stagnated at under Dollars 62bn (Pounds 41bn) since 1989, with their share of world farm trade falling from 20.3 per cent in 1989 to 18.7 per cent in 1991.

The group warned that the US and the EC would need to improve the terms of the Blair House agreement. 'Access must be maintained on terms at least equivalent to those existing.'

THE US has stripped Mauritania of special trade status and threatened to do the same for eight other nations, including Indonesia and Thailand, if they do not improve workers' rights.

Mr Mickey Kantor, the US trade representative, said 'specific action plans' had been developed to improve worker rights in El Salvador, Guatemala, Indonesia, Thailand, Malawi and Oman. 'If countries fail to make substantial concrete progress in address worker rights concerns during (the next six months), their GSP benefits will be in serious jeopardy,' he said.

He gave Indonesia eight months to bring its labour norms into line with 'international norms'.

The generalised system of preferences (GSP) is a tariff-free programme designed to help the developing countries gain markets in the US, and it has often been used as an important trade policy tool.

Mr Kantor's announcement was hailed by human rights activists.

A Somali distribution worker fights with a woman for a food bag in which she wanted to hide an extra wheat ration. The queuing for food continued in Mogadishu yesterday as Somali gunmen shot and wounded two American soldiers, one seriously, in an ambush in south Mogadishu. One of the soldiers said he and a colleague were trying to clear a roadblock.

THE leaders of five main non-communist opposition parties in Japan agreed yesterday to maximise co-operation in the general election on July 18 with the aim of defeating the Liberal Democratic party, which has been in power since 1955.

The meeting of opposition parties, called by Mr Tsutomu Hata, leader of a 44-strong breakaway from the LDP, agreed to negotiate an electoral pact to avoid their candidates splitting the anti-LDP vote.

The parties attending the meeting at a central Tokyo hotel were Mr Hata's Shinseito, a conservative party formed last week, the Social Democratic party, which is the largest opposition party, the Komeito clean government party, the Democratic Socialist party and the small United Social Democratic party.

The Japan New party, another new conservative party formed last year which is becoming popular in urban areas, refused to attend because it said it did not want to be associated with former members of the LDP.

The party leaders said they aimed to form a coalition government to reform Japan's political system. However they shelved debate over controversial foreign policy issues which divide them, such as their approach to Japan's security alliance with the US.

Mr Hata's group of former LDP members includes strong supporters of US policy and of Japan playing a larger role in United Nations peacekeeping operations. But the Social Democratic party is opposed to both the relationship with the US and the dispatch of Japanese troops abroad.

The opposition parties attempted to allay concerns about their differences and the socialist influence within a coalition by saying they would maintain the LDP's basic foreign and diplomatic policies.

The opposition meeting comes amid growing signs that Japanese business leaders, including the Keidanren, the powerful federation of economic organisations, will consider funding Mr Hata's party after the election.

ANY Japanese acceptance of numerical targets on access to its domestic market would automatically lead to managed trade and increase government interference in the economy, a senior Japanese official warned yesterday.

Mr Noboru Hatakeyama, outgoing vice-minister for international affairs at the Ministry of International Trade and Industry, made his comments as US and Japanese negotiators gathered for talks on a framework for subsequent discussions on issues such as government procurement and competition.

The US is pressing Japan to adopt economic policies to cut its current account surplus from about 3.5 per cent of gross national product to about 1.5 per cent and to accept targets to measure its progress in opening its market to imports.

Mr Hatakeyama said Japan had the lowest tariffs on imported industrial goods of any major economy, and added: 'If the US wants to increase imports of industrial goods swiftly, that can only be achieved by the Japanese government asking people to purchase what they do not want to buy.'

It was Japan's view that any numerical targets to measure import penetration would be inevitably be used to put pressure upon the government to intervene in the market.

Mr Lawrence Summers, the US Treasury undersecretary for international affairs, denied the US was seeking managed trade. Speaking in Tokyo on Friday, he said the US wanted to open up highly regulated areas of the Japanese economy as part of a programme for Japan to 'normalise its economic relations with the rest of the world'.

DR Onno Ruding, the former Dutch finance minister, has emerged as the leading candidate to replace Mr Jacques Attali as president of the European Bank for Reconstruction and Development.

However, French foreign minister Alain Juppe said yesterday that Paris wanted to keep the presidency of the bank French. 'I will undertake to recall that France has a sort of moral credit on this presidency,' he said.

'Since the choice was made that the EBRD should be based in London with a French person at its head, I think this choice should be respected, beyond the departure of Mr Attali,' he told RTL radio.

The timing of any decision on who to appoint is uncertain, because the 56 governments and agencies which own the bank were caught off guard on Friday when Mr Attali announced his intention to resign as soon as a successor is found. 'There is a consensus that Mr Attali must be replaced quickly,' commented a bank director. 'Although he remains at the bank, it is impossible for him to do his job properly since everyone knows he is going.'

But the director added that choosing a permanent successor should not be done in a rush. 'A number of us feel that someone should be appointed temporarily to the job, while decisions are taken on a permanent replacement and also on the structure of the bank's management.'

Bank directors are touting three individuals as interim presidents: Mr Mario Sarcinelli, the Italian vice-president in charge of development banking, Mr Ron Freeman, the first vice-president in charge of merchant banking, and Mr Claes de Neergaard, Sweden's representative on the board of directors and chairman of the audit committee.

Directors said that candidates to replace Mr Attali permanently were led by Dr Ruding, currently working for the US bank Citicorp, and also include Mr Henning Christopherson, the EC commissioner, Mr Jacques de Larosiere, governor of the Banque de France, Mr Jean-Claude Trichet, head of the French Treasury, and Mr Karl-Otto Pohl, former president of the German Bundesbank. 'Ruding is the only one who seems to command broad support among the G7 governments,' said an official from one of the G7 leading industrial countries.

Ms Anne Wibble, the Swedish finance minister and chairman of the bank's governors, has said she will meet her vice chairmen as soon as possible to discuss how to replace Mr Attali. The bank's governors are expected to offer Mr Attali a year's salary - Pounds 149,000 after tax - for loss of office.

The bank's directors today hold a board meeting, which is likely to approve the bank's first Bulgarian loan. The replacement of Mr Attali is not on the formal agenda.

Editorial Comment, Page 15

OUTSIDE, eight Bavarian policemen forced a demonstrator to the ground at the weekend in front of the hall in which Germany's far-right Republican party held its annual congress. Inside, 591 party delegates, many of them police themselves, were fine-tuning the programme with which the Republicans will project themselves as the law and order party in next year's federal and state elections.

With street violence and the number of foreigners in the country on the rise, the Republicans say the electorate is ripe for their patriotic, be-tough argument.

And, with scandals marring the image of Germany's mainstream parties, they hope to tap into a rich vein of protest votes.

But their trump card, according to Mr Franz Schonhuber, the populist party leader, will be to speak out to the large part of the German population which stands against Maastricht and fears a common currency.

Mr Schonhuber claims the Republican party, which represents a legitimate nationalist force to the right of Germany's alliance between Chancellor Helmut Kohl's Christian Democratic Union (CDU) and the Bavarian-based Christian Social Union (CSU), will gain 10 per cent of the national vote next year.

After poor results in the 1990 national elections, where it attracted the support of 2.1 per cent of the electorate, the party gained ground in state elections by securing 10.9 per cent in the Baden-Wurttemberg parliament last year and by winning nearly 8 per cent in local elections in Hesse in the spring.

But the Republicans claim the worsening domestic situation will now allow them to win seats in the federal parliament.

In a long litany to the congress in Augsburg Mr Rudolf Seuffert, party leader for Bavaria and formerly active in the CSU, pointed to the growing number of asylum seekers in Germany and the billions of D-Marks spent to cover their living costs.

His colleague, Mr Georg Wischnat, a civil servant from Hamburg and a former supporter of the opposition Social Democrats (SPD), says the party will stand for 'the small people' and denounce 'the growing corruption in public life'.

'We must do something because both in Europe and in our own country, Germans are being sold down the river,' adds Mr Hubertus Vierhaller, an export company manager who used to support the CDU, as he leans against a table on which party organisers display tapes of German patriotic songs.

But above all, anti-foreigner arguments pervade the party's populist rhetoric. The programme calls, for example, for the nationality of criminals to be disclosed, for asylum seekers to be put in camps until their cases are judged, and for German families to enjoy special rights when seeking accommodation.

'We Germans have to find ourselves again,' says Mr Schonhuber, a former Waffen SS member, who is calling on his fellow men to overcome their post-second world war sense of guilt. 'Otherwise, we will have lost the war only today.'

THE World Bank today will announce the appointment of Mr Jannik Lindbaek, head of the Nordic Investment Bank, to lead its private sector development arm, the international Finance Corporation, from January 1 1994.

Mr Lindbaek will succeed Sir William Ryrie, who has overseen an extraordinary growth in the IFC's lending and resources since taking on the leadership in 1984. Sir William will retire 'to do other things' from the IFC in December.

The Helsinki-based NIB, owned by Denmark, Finland, Iceland, Norway, and Sweden, finances projects on commercial terms within the Nordic regions and in 15 developing countries. Like the IFC, it borrows on the international capital markets with a triple AAA credit rating.

Mr Lewis Preston, World Bank president, praised Mr Lindbaek's 'record of accomplishment in both the private and public sectors'. Before moving to the NIB in 1986, Mr Lindbaek was president of Norway's largest insurance company, Store Brand group, and executive vice-president of Vesta insurance group.

His record at the NIB parallels the innovation and growth Sir William has achieved at the IFC. He established the Nordic Environmental Finance Corporation to invest in joint ventures in central and eastern Europe and helped initiate the Baltic Investment Programme, administered by the NIB, to boost development of small and medium-sized business in the Baltic.

Sir William's tenure at the IFC coincided with a US push for increased private sector development and democratisation of the developing countries throughout Latin America. With US prodding, the IFC secured two capital increases and investment soared from Dollars 400m in fiscal 1984 to Dollars 2.1bn (Pounds 1.4bn) in 1993. During that period profits rose from Dollars 25m to over Dollars 200m.

The IFC is 'financially very strong', Sir William said, but profits this year were cut by the fighting in the former Yugoslavia and by lower US interest rates. The corporation has invested heavily and mostly successfully in eastern Europe and the former Soviet Union, where it has also played a principal advisory role in privatisation activities.

Its investments in Latin America are 'another success story', Sir William said, but its African financing activities are his greatest disappointment. The African fund set up in 1988 was originally expected to break even in 1995, but 'the environment has been very difficult'. No profits are expected until after the year 2000.

Mr Lindbaek is considered to be, like Sir William, an innovator. Born in Oslo in 1939, he attended the Norwegian School of Business Administration and Economics and was a Fulbright Scholar. He and his family live in Helsinki.

Observer, Page 15

One of the founders of Italy's far-left Rifondazione Comunista, the rump of the country's once-powerful Communist Party, resigned yesterday as its secretary, Reuter reports from Rome.

'My motivations are purely political,' said Mr Sergio Gravani, indicating he was not involved in any of Italy's corruption scandals.

Mr Gravani, 67, helped found the party when it broke away from the more mainstream Democratic Party of the Left in 1991.

TRADE union leaders in Germany warned this weekend of all-out opposition to the cuts in social spending planned by Mr Theo Waigel, finance minister, as part of his latest drive to curb the public-sector budget deficit.

At the same time, leaders of German industry have warned that the package may not be tough enough to control the deficit and therefore to give the German Bundesbank room for further cuts in its leading interest rates.

The package, which Mr Waigel hopes to finalise in negotiations with ministerial colleagues, and members of the parliamentary parties in the ruling coalition, by tomorrow night, is supposed to cut public spending by DM30bn (Pounds 12bn) next year, by DM35bn in 1995 and DM40bn in 1996.

Key components are a 3 per cent across-the-board cut in unemployment and social assistance benefits, imposition of a 32-month time limit on unemployment pay, a pay freeze in the public sector, and cancellation of 'bad weather pay' for workers in the building industry.

Mr Heinz-Werner Meyer, chairman of the German trade union federation (DGB), described the package as 'anti-social and therefore unacceptable' to the trade union movement. He warned of opposition from the labour movement 'with all the means at our disposal', clearly implying strike action, although political strikes are illegal.

IG Bau building workers' union also threatened strike action if 'bad weather money', compensating construction workers for idle days, is cancelled.

Mr Rudolf Scharping, the new national chairman of the opposition Social Democrats, added his voice against cuts in social spending, although he hinted that some compromise might be necessary.

Mr Waigel seems to be determined to hold his line for a savings package which is merely intended to keep the federal government's budget deficit to DM70bn in 1994 - the same as the probable outcome in 1993, compared with an original target of DM43bn.

He repeated at the weekend that it was wrong for unemployed workers to earn more than those with jobs, and wrong for those on social assistance to get as much as those who have paid their unemployment benefit.

His plan would cut a married worker's dole money from 68 to 65 per cent of net income, and that of an unmarried worker from 63 to 60 per cent.

Mr Waigel held talks last week with most of his departmental colleagues, including Mr Matthias Wissman, the transport minister (who faces a freeze on all new west German road building), and Mr Gunter Rexrodt, economics minister, who is being asked to cut subsidies to the coking coal industry. Today he has an important meeting with Mr Volker Ruhe, defence minister, before presenting his package to the leaders of the parliamentary parties in the ruling coalition.

Although the budget is to be finalised only by July 13, Mr Waigel and Chancellor Helmut Kohl want to have the savings package agreed before the Group of Seven summit on July 7-9. They expect to face renewed pressure there for tougher spending control, in order to give the Bundesbank room for more interest rate cuts.

FAR from offering marketing managers a conformist, 'Euro-consumer' paradise, the EC's citizens remain intractably individual. Research by Mintel provides extensive evidence - 16 volumes of it in all - of huge diversity in the European market of 340m consumers.

It is impossible to give a complete breakdown of the picture Mintel has built up after questioning more than 7,000 consumers in Belgium, Britain, France, Germany, Italy, the Netherlands and Spain. But the flavour of the mix of consumer attitudes should be taken into account by any business toying with the idea of pan-European marketing.

Mintel's report suggests that certain trends prevail throughout the EC - generally higher spending on healthcare than a decade ago, yet lower spending on food and drink - even though individual markets have markedly different characteristics. For anyone involved in marketing across EC borders it is vital to understand this apparent contradiction.

Take new products. Multinational companies increasingly seek to launch new products across the whole of Europe, not just one or two countries. Knowing what influences consumers to sample a new product is a vital piece of marketing information.

And knowing that the French are twice as likely as the European average (22 per cent against 11 per cent) to sample a new product if they see it being endorsed by a celebrity - as Mintel's survey has discovered - could make a big difference in the manner and costs of marketing that new product in France.

In the UK only 1 per cent of those asked said they would be influenced into new product sampling by seeing it endorsed by a celebrity.

Similarly, the perceived power of advertising differs across the EC. In Italy (50 per cent) and France (55 per cent) more than half those questioned said all forms of advertising played a key role in prompting a purchase. Yet in Spain only 31 per cent said that advertising had an effect on their spending habits.

When it comes to particular media, habits are again widely different. Just 9 per cent of Spaniards claim to be influenced by magazine and newspaper advertising, whereas in France the figure is 29 per cent. Across the six countries an average of 19 per cent said they were influenced by magazine and newspaper advertising, against just 6 for radio advertising.

Marketing takes many forms, with some of the most influential the least visible. Sales promotions, direct mail, free-trial offers and money-off coupons meet a widely different consumer response across the EC.

While just 4 per cent of Dutch respondents admitted to being influenced by eye-catching package designs, the figure shoots to 21 per cent of French shoppers. Only 22 per cent of Dutch admit to being swayed by money-off coupons, yet 67 per cent of French find it an important factor.

And just as current purchasing practices are far from homogeneous, future ones are likely to be highly variable.

Mintel asked respondents what they would spend more on if their incomes increased by 25 per cent. Of those opting to spend more on leisure activities, 22 per cent of the French would raise spending on meals outside the home; just 6 per cent of the Italians would make that choice.

European Lifestyles 1993, available from Mintel, 18-19 Long Lane, London EC1A 9HE, 16 volumes at Pounds 6,660. Individual reports, price on request.

MR Carlo Azeglio Ciampi, Italy's prime minister, has tossed the survival of his fragile government into the ring in a last-minute attempt to force employers and trade unions to agree on a new wage bargaining system.

Mr Ciampi set a deadline of July 5 for an accord. Failing an agreement, he implied that his two-month-old government could fall.

Mr Ciampi said a wage deal was essential for Italy to maintain its fight against inflation and credibility in international markets. He made clear the negotiations would not be allowed to drag on and resume after the holiday period if the two sides could not reach a compromise by next Monday.

The warnings followed a tense week during which neither unions or employers showed any sign of compromise, but with neither side wanting to take responsibility for a breakdown.

The government will continue individual talks with union leaders and the Confindustria employers' federation this week in an attempt to bridge differences. Bilateral discussions with Confindustria are due today, and a new round of meetings with union leaders is scheduled for Wednesday.

The discussions follow last July's agreement between employers and unions to abolish the scala mobile wage indexation system. The accord, hailed as a breakthrough in restraining inflationary wage rises, helped substantially to improve Italy's international competitiveness.

However, crucial issues were put off pending further discussions between unions and employers and it is these negotiations which have now reached a head. Last week, fears of a breakdown started to affect share prices and the lira.

Although there has been some narrowing of the differences, the two sides remain apart on the overall structure of the labour market and the details of new contractual arrangements for workers.

The trade unions have fiercely resisted Confindustria's demands for greater labour flexibility, especially for young people. With membership under pressure in the recession and signs of a drift towards extreme splinter groups outside the main trade union structure, union leaders have been loath to dilute existing demarcation and job security provisions.

The question of contractual arrangements is more complex. Employers want to simplify the present, multi-level bargaining system and gear pay more closely to companies' profitability. The unions are highly uneasy about such changes.

Mr Giuliano Graziosi, a former managing director of the state-controlled Stet telecommunications group, has been arrested on allegations of paying kickbacks for contracts to the former ASST state telecoms group. Mr Graziosi is the latest senior telecommunications executive to be enmeshed in corruption allegations involving ASST.

OLYMPIQUE de Marseille, the successful French football team owned by Mr Bernard Tapie, the left-wing politician and businessman, has contested allegations that its staff rigged a crucial match.

Mr Christophe Robert, a striker for Valenciennes, was questioned by French public prosecutors on Saturday, suspected of having received a FFr250,000 (Pounds 29,400) bribe to fake an injury against Marseille last month.

Marseille went on six days later to beat AC Milan in the final of the European Cup, becoming the first French team to win the title. Valenciennes was relegated to the second division after losing.

Charges have yet to be made, but the investigation is likely to ensure French football comes under fresh public scrutiny. Mr Tapie, who made enemies in the football world a few years ago by leading a campaign against corruption, firmly denied his staff were involved in such practices.

'One cannot cheat at that level,' Mr Tapie said.

The allegations came from another Valenciennes player, Mr Jacques Glassmann, who claimed Mr Jean-Pierre Bernes, Marseille's general secretary, and Mr Jean-Jacques Eydelie, a Marseille player, telephoned members of the opposing team to offer cash inducements to play badly.

Mr Bernes has sued and Mr Eydelie last week voluntarily approached the public prosecutor on the issue. Both deny the allegations.

MR FELIPE GONZALEZ has precipitated a split in the ruling Spanish Socialist party (PSOE) by forcing through the nomination of Mr Carlos Solchaga as party parliamentary spokesman.

Mr Gonzalez risked his survival as PSOE leader by confronting the party's powerful deputy leader, Mr Alfonso Guerra, during a heated weekend meeting of the Socialist leadership to decide the pivotal post.

Jettisoning the traditional show of consensus over top party appointments, the Socialist executive voted 15-13 to support Mr Gonzalez's nomination of Mr Solchaga, the economy minister in the outgoing government.

The nomination must now be endorsed by the party's MPs today.

By selecting Mr Solchaga, whose economic policies since 1985 have made him deeply unpopular with the unions and with the left wing of the PSOE, Mr Gonzalez has given the clearest indication to date of what sort of government he intends to form.

He has also signalled that he intends to take on the PSOE party machinery, which Mr Guerra turned into his personal power base after resigning as deputy prime minister in the wake of a corruption scandal in 1991.

The nomination of Mr Solchaga, overriding the Guerra camp in the PSOE, sets the stage for Mr Gonzalez to bring new faces, loyal to him and independent of the party, into his forthcoming government. But it also raises the prospect of a serious division in the Socialist ranks when the PSOE holds its next party congress.

Mr Gonzalez will, in all likelihood, be forming a minority government because the Catalan nationalists have declined his offer to join him as junior coalition partners. The survival of his government will depend on his ability to negotiate legislation with the opposition parties.

Supporters of Mr Gonzalez said at the weekend that the party congress, which meets every three years and must be held before November 1994, could be brought forward to this November in order to secure Mr Gonzalez's ascendancy over the PSOE.

The immediate political agenda, however, focuses on the opening of the new parliament tomorrow, when a speaker, possibly a non-Socialist, will be elected. Also, King Juan Carlos and party leaders will begin formal consultations to propose a candidate for prime minister.

As leader of the biggest party in parliament, Mr Gonzalez is certain to be the monarch's choice to form a government. He will face an investiture debate, probably in mid-July, and should he obtain the confidence of the house he will subsequently announce his cabinet.

SERBS and Croats launched at the weekend a joint offensive on Moslem-held towns in central Bosnia as Croat commanders to the south announced an end to war with the Serbs.

Sarajevo radio said dozens of people were killed on Saturday when Croat and Serb forces shelled Maglaj, north of the Bosnian capital. The report could not be independently confirmed.

In Sarajevo, seven people were killed when a mortar shell hit the old town centre. The victims, whose ages ranged from four years to 22 years, had been playing on the street, according to a local doctor.

Meanwhile, at Bijela kod Konjica in south-west Bosnia, Croat commanders hailed a weekend agreement with local Serbs, their former enemies. 'The time when the Croatian and Serbian soldiers look at each other down a barrel has passed,' said commander Dragan Juric of the Croatian Defence Force (HVO) in the Neretva river valley, the scene of some of the bloodiest Serbo-Croat clashes of the 15-month war in Bosnia.

'The Croatian population and army in this area, faced with a Moslem onslaught, simply would have been destroyed if the Serbs had not offered the hand of salvation,' said commander Drago Simunovic Magda, according to Tanjug, the Serbian news agency.

A tactical alliance between Bosnia's Croat and Serbs has emerged as both sides, assuming they have the backing of some key members of the international community, hasten the partition of the former Yugoslav republic.

But at international talks in Geneva, Croat leaders have failed to reveal their proposed map on the division of Bosnia. They are also seeking to assert control over Serb-held territory in Croatia's south-west, which cuts the republic in two. Remarks by General Janko Bobetko, the Croat army chief-of-staff, over the weekend dismiss the possibility of a lasting truce with the Serbs. 'It is only a pause for breath before the important events which lie ahead,' Croatian radio reported him as saying.

'The world seems to have accepted Serbian conquests but Croatia cannot and will not accept this.'

Croatian President Franjo Tudjman threatened at the weekend to cancel hospitality to Bosnia's Moslem leaders. He said Moslem leaders had used Zagreb as a base for meetings and links to the outside world, while accusing them of 'open aggression and crimes towards the Croatian nation'.

Meanwhile, General Rasim Delic, commander of the Moslem-led Bosnian army, warned of a 'general escalation' if his troops were subjected to further joint attacks. He appealed to the UN to enforce a ceasefire agreed earlier this month, Sarajevo radio reported.

Lord Owen and Mr Thorvald Stoltenberg, the international mediators, will meet today in Geneva with part of the Bosnian presidency, represented by Croats, Serbs and a single Moslem.

Mr Alija Izetbegovic and two key Moslem allies are boycotting the session.

They believe the proposed three-way partition is a precursor to a two-way carve-up and the annexation of Bosnia to neighbouring Serbia and Croatia.

The only Moslem representative attending the meeting is Mr Fikret Abdic, a rival of Mr Izetbegovic who said he could be assassinated if he travelled to Sarajevo.

WESTERN oil companies are trying to decide how to respond to a sudden government decision to cancel Azerbaijan's first big investment contract in the strife-torn republic.

The abrupt cancellation was made after the companies had paid Dollars 70m (Pounds 46.6m) in pre-signing bonuses.

The deal, which the oil companies had decided to pursue even after the republic's elected president was stripped of his power, was for the development of the ex-Soviet republic's estimated 4bn barrels of oil reserves off its Caspian Sea coast.

The authorities have given no explanation for a decision to 'nullify' the contract, which before President Abulfaz Elchibey fled the capital was due to be signed on July 2. A consortium of eight western companies - led by British Petroleum and Amoco and Pennzoil of the US - was to develop three fields containing all the country's proven reserves.

The other companies involved are Britain's Ramco Energy, Norway's Statoil, the US's McDermott International and Union Oil of California, and the Turkish Petroleum Company.

The acting government has not said what it will do next, short of promising the companies that their money will be refunded.

Oil executives suggested the government may decide to alter the percentages allotted to each company, negotiate an entirely new contract, or call for new companies to apply.

One even speculated that some oil companies may even be using this month's political upheaval to change the terms of the arrangements.

'We're waiting to see what direction the government takes now,' said one executive, from the capital of Baku. 'The government is sophisticated enough to know that if you try to take the money and hide with it, you'll cut yourself off from new oil companies. They won't stand for something like that.

'They have an obligation to us - we hope.'

The decision was taken by the government on Wednesday, only a day after it accepted pre-signing bonuses.

It coincided with the return to power of the republic's Brezhnev-era leader, Mr Heidar Aliyev. President Elchibey, who had given full backing to the deal, has taken refuge in his home village and called the confiscation of his powers a coup d'etat.

On Saturday night Mr Surat Husseinov, the leader of the mutiny which facilitated Mr Aliyev's return to power, entered the capital to begin talks with the latter, diplomats said.

Mr Husseinov, 35, a war hero who commands a private army estimated at more than 3,000 men, has been demanding to be either president or prime minister, with control over the republic's defence and interior ministries, and its KGB.

Diplomats have expressed surprise that the 70-year-old Mr Aliyev has not dispatched his younger rival and got him to accept a lesser position.

PRESIDENT Boris Yeltsin's constitutional convention, which reconvened at the weekend, is no closer to adopting a new constitution despite progress in refining a draft text, writes Leyla Boulton in Moscow.

Mr Yeltsin said one more plenary meeting of the convention was required to finalise a draft but set no date for it. Many participants believe the new constitution can only be adopted after parliamentary elections this autumn. Parliament, meanwhile, officially boycotted the meeting, although several deputies showed up.

The refined draft establishes reassuring checks on the president's powers, following fears that the original draft could become a blueprint for dictatorship.

A loose phrase allowing Mr Yeltsin or his successors to dissolve parliament when a political crisis cannot be resolved by constitutional means has been dropped.

The latest presidential draft also seeks to appease supporters of a rival parliamentary draft, which is touted as being more socially just, by incorporating a citizen's right to housing - even though economists might deem this an unwise commitment on the part of a bankrupt state.

The main point of conflict now centres on defining the rights of Russia's 89 regions and republics. The new draft says the 22 republics, which are based on ethnic minorities, are 'sovereign' while the regions, many of which are richer and more powerful than republics, are just 'state formations'.

While some critics argue that calling the republics sovereign only panders to separatist aspirations, some regions are upset at not being given an equal status to republics.

POLISH President Lech Walesa yesterday refused an invitation to attend a Solidarity trade union convention after delegates decided not to support his non-party bloc in September parliamentary elections, Reuter reports from Zielona Gora.

Mr Walesa's spokesman said the president decided not to come to the congress of the union he once led because the delegates had voted on whether Mr Walesa should be invited at all.

'This is an unprecedented situation. If such actions are taken it is hard for the president to consider that his presence is really necessary and expected,' the spokesman told private Polish Radio Z.

The union sought to invite Mr Walesa to attend yesterday, a day after they rejected his offer to join his newly-formed alliance of independent groups and decided to submit their own candidates for the election on September 19.

At the congress in the south-western city of Zielona Gora, several Solidarity delegates opposed inviting Mr Walesa who had hoped to win support for his Non-Party Bloc of Support for Reforms (BBWR).

'It would be a Trojan horse at the congress. Mr Walesa has already begun his election campaign for the BBWR,' Mr Tomasz Wojcik, a delegate, said.

Solidarity's participation in the BBWR - which Mr Walesa hopes will help the next government force through economic reform - would have boosted the bloc's chances of becoming an important force in parliament.

On Saturday 253 Solidarity delegates voted to run alone and only 28 wanted to join Mr Walesa's alliance.

Many workers still regard the union as the force which is best able to represent their interests.

MR Douglas Hurd, British foreign secretary, yesterday did not rule out an end to the arms embargo against Bosnian Moslems, although he reiterated the arguments against such a policy.

'It may become inevitable,' he said, though he underlined his belief that such a move would be the 'politics of despair', indicating an acceptance among outside powers that there was no solution but to allow the warring factions in Bosnia to fight it out.

On British television, Mr Hurd said that if peace negotiations broke down, and the position of the UN forces in Bosnia became intolerable and they were pulled out, then he could see some outside powers insisting they armed those involved in the fighting.

He refused to be drawn on whether the UK would use its veto if the proposal for lifting the embargo were put to the UN, but added that that point had not yet been reached, since there was no majority on the Security Council in favour of such a move.

A FEW weeks ago Mr Ross Perot, the billionaire businessman who stood as an independent presidential candidate, was caught muttering that President Bill Clinton was planning a war in the Balkans to take attention away from his domestic difficulty.

No such accusation has been made after the latest strike on Iraq - not because the president's fortunes have not recovered, which they have, to a degree, but because of the peculiar place in current US demonology reserved for President Saddam Hussein of Iraq.

The Clinton administration has gone to some lengths to try to stress that it is not as obsessed with Saddam the man as the administration of former President George Bush seemed to be. But the presentation of sufficiently persuasive evidence that Iraq was behind the foiled assassination attempt on Mr Bush in Kuwait 10 weeks ago meant that the domestic political risks of another raid on Baghdad were minimal.

Thus it was hardly surprising that, having seen Mr Clinton give a televised address on Saturday night, Senator Bob Dole, the Republican leader, promptly called the White House to express his support. Similar endorsements were available across the political spectrum yesterday, including from Senator Sam Nunn, the Democrat from Georgia and chairman of the armed services committee who rarely has a good word to say for his president.

This domestic solidarity also enables the administration to address criticisms from the Arab world contrasting the willingness to bomb Iraq with the inability to come to the rescue of Bosnia's Moslems.

As Mr Les Aspin, the secretary of defence, put it yesterday, 'you can understand why people feel this way'. But, he went on, there were quantum differences between Bosnia and the transgressions of the Iraqi leadership. 'You'll find us picking and choosing' places where US retaliation might be warranted, he added. 'Saddam Hussein', he went on, 'has not learned the lesson of Desert Storm.' Similarly General Colin Powell, chairman of the joints chiefs of staff, regretted any 'collateral damage' outside the Iraqi intelligence headquarters in Baghdad, but argued that it was 'nothing compared with the collateral damage Saddam Hussein was planning by possibly killing a former president of the United States'.

The administration seems to have planned this operation with deliberation and discretion. Mr Clinton himself took the decision on Friday but ordered that it be carried out in the middle of the night to minimise casualties and that it be delayed until after the Moslem sabbath, so as to avoid gratuitous offence.

He acted only after sifting evidence provided by the FBI and the CIA. Ms Janet Reno, the attorney general, and Mr Jim Woolsey, the CIA director, made their formal reports to the president last Thursday. Contrary to recent practice there were no leaks.

About a dozen US allies were informed privately in the 24 hours before the raid took place. None apparently dissented and none was asked to offer anything other than verbal support; Mr John Major, the British prime minister, was the first to come forward shortly after missiles had hit Baghdad.

The justification offered was Article 51 of the UN Charter - the right to self defence. The action, according to Mr Aspin, 'in no way diminishes US support for coalition action (against Iraq) or for the authority of the UN'. The US immediately convened a UN Security Council session yesterday afternoon to hear its case, which will be principally devoted to the attempt on Mr Bush's life and not to the series of Iraqi violations of UN resolutions.

In addition, several US officials, including the president, made much of the need to combat state-sponsored terrorism, of which the US considers Iraq to be a leading practitioner. Similar suspicions also attach to Sudan, especially after the discovery last week in New Jersey of an alleged terrorist cell numbering several Sudanese nationals with a list of targets in New York. No comparable action, however, is believed to be planned against Khartoum.

Although three cruise missiles missed their target, the claimed effectiveness of the rest of the raid does not hurt the credibility of the US military. The missiles were launched from warships in the Red Sea and the Gulf and involved no other air or ground power. It probably does Mr Clinton no harm to have authorised what appears to have been a successful strike. His relations with his own military have been fraught over the defence budget, base closings and the admission of homosexuals into service.

JUST in case the rest of the world was in any doubt, Saturday night's missile attack on Baghdad has underlined that, for the Clinton administration, it is business as usual with Iraq.

The brief speculation during President Bill Clinton's first three months in the White House that he might adopt a less confrontational response to the provocations of President Saddam Hussein has been answered.

The Iraqi leader can now abandon any remaining hope that Mr Clinton would be even marginally more accommodating than former President George Bush.

The message had already been clearly spelled out last month by Mr Martin Indyk, the director for Near East and south Asian affairs at the National Security Council. In a speech to the Washington Institute for Near East Policy, Mr Indyk laid out the broad lines of US policy, a core part of which was the perception that the threats posed by Iraq and Iran had at all costs to be contained. Because the US was now the sole superpower in the region, the need to sustain either country as a bulwark against the ambitions of the other had gone. Both were to be treated equally as fundamental threats to US interests in the Middle East.

Mr Indyk stressed that Washington did not seek or expect a reconciliation with President Saddam's regime. 'Our purpose is deliberate,' he said. 'It is to establish clearly and unequivocally that the current regime in Iraq is a criminal regime, beyond the pale of international society and, in our judgment, irredeemable.'

It is against that assessment that the missile attack on Iraq's intelligence headquarters in Baghdad has to be seen. From the American perspective there was a proven Iraq attempt on the life of Mr Bush, and the response was appropriate.

The shortcomings of US policy are as obvious as ever. Since the third year of the eight-year war with Iran, President Saddam has survived in large part by posing as the saviour of his people against external aggression. The US missile attack on a Baghdad suburb, which also killed civilians, is further grist to his propaganda mill. It will probably not have weakened his grip on power in any way, despite the impact of worsening economic conditions on the majority of Iraqis.

In the wider region the reaction of Egypt, a key US ally in the Arab world, reveals the nervousness of America's friends. 'I wish that American policies were as strict towards the crimes the Serbs carry out against Bosnia-Hercegovina, which violate all legitimacy and international conventions,' said Mr Amr Moussa, Egyptian foreign minister. Others would have added a string of other examples, most emphatically the US attitude towards Israel's occupation of the West Bank, Gaza, the Golan Heights and south Lebanon.

While the Clinton administration argues that it must contain the ambitions of countries such as Iran and Iraq in order to make an Arab-Israeli peace agreement possible, some of America's Arab friends believe it has the opposite effect. They fear that the emotional impact on Arab populations of US military strikes on Baghdad strengthens opponents of the peace process and bolsters opposition groups, especially Islamic radicals, in countries where governments are generally sympathetic to the west.

Equally, it will be used in Tehran by those factions within the regime which are against any attempt to present a more tolerant face to the outside world.

The Clinton administration has already identified Iran as the world's foremost sponsor of terrorism. It has urged other governments to do everything within their power to deny weapons to Iran and squeeze the country economically, arguing it is vital to act now while Tehran's ambitions still outstrip its capabilities.

The unproven assumption is that if the economic pips are squeezed hard enough, populations will rise up and remove their political masters. Such has not yet been shown to be the case in Iraq, and probably will apply equally to Tehran, where the regime is no less vigorous in responding to any internal challenges.

By linking the regimes of the two countries so simplistically, the US has bitten off a large chunk of the Middle East with which to be in confrontation. It is a policy which demands a substantial, continuing military presence in the area and, no less critically, the wholehearted support of its regional allies, primarily Saudi Arabia together with the other five members of the Gulf Co-operation Council, and Egypt.

So while there is no love lost between Baghdad and Tehran, there is likely to be a growing coincidence of interest between the two regimes in seeking to undermine American policy at its most vulnerable - that is, among its local allies. President Hosni Mubarak of Egypt has said several times that Iran is behind the current wave of terrorism designed to destabilise his government, while there have been renewed signs in Saudi Arabia of the Islamic right flexing its political muscle.

The dominance of US military power conferred by the collapse of the Soviet Union offers no answer to populist movements in the Middle East, and has limited effect in weakening the hold of dictatorial governments. Yet, in the absence of progress towards the resolution of long-standing Arab grievances, primarily the Arab-Israel conflict, it will be seen in the region as the primary tool of a selective American policy.

There was widespread disappointment among Arab peace negotiators at the departure in January of Mr Bush, and that earlier of Mr James Baker, his secretary of state. The two men had been credited with a genuine commitment to securing a Middle East peace settlement acceptable to the Arabs, and a readiness to twist Israeli arms.

Doubts persist whether that commitment is as fully shared by Mr Clinton and Mr Warren Christopher.

If, after the latest attack on the Iraqi regime, it appears to many Arabs that Mr Clinton has inherited Mr Bush's readiness for military action, but less of his muscle in promoting a peace agreement, then hostility towards the US in the Middle East is likely to grow.

THE RESIDENTS of Baghdad seemed to have been taken by surprise. Sirens in the city wailed at about 2am and minutes later there was the sound of what seemed like explosions. Anti-aircraft fire was also heard.

But Baghdad had tested its sirens the previous day as the country commemorated a victory in battle over Iran in the 1980-1988 war. Even after a hugh blaze could be seen rising from the Mansour area about 3km from the city centre, the streets remained almost empty of cars and the residents who were out and about were surprised to hear that there had been an attack on Baghdad.

People initially mistook the attack for a military exercises. 'It is an exercise,' said one. 'They announced it today.'

Baghdad Radio continued normal programmes for nearly two hours before switching over to national anthems.

There also had been no signs the authorities were expecting an attack. Official newspapers had been empty of anti-US rhetoric and there had been no sign that air defences were being strengthened.

By daylight, however, reality had sunk in. As dawn broke, the silence across the city was broken by shouts of 'Allah Akbar' (God is great), and the normal fears began to resurface. 'God, put an end to all this,' a woman wailed.

'Does this mean they are going to hit us whenever they want?' said a passer-by in the city's Bab al-Sharji district.

'I wonder whether Clinton will be satisfied with one strike,' a petrol station worker said.

Then came the defiance. Soldiers on leave in a Baghdad garage were unimpressed. 'It is peanuts,' one said. 'We have seen worse than that.' Baghdad Radio said that the US 'will not be able to shake even a single Iraqi palm leaf regardless of the treacherous power with which they came this time.'

President Saddam's Revolution Command Council denounced the attack as 'cowardly aggression', which 'martyred several civilian citizens in houses near the headquarters and wounded many others, including women and children'. The US had 'continued to seek to fabricate crises and lies to pursue their criminal policy against the Iraqi people'.

Ms Eleanor Biles, a Reuter TV producer, said she was having a drink with some foreign aid workers in the Al Rasheed hotel, where most foreigners stay in Baghdad, when the sirens sounded. She then heard a series of huge explosions that went on for about 10 minutes.

In the hotel foyer, she said, people at first seemed in doubt as to whether the attack had come from Iran or the US.

She said: 'As it became clearer that the US was behind the attack on Iraq's intelligence headquarters, several Arab guests angrily stamped and jumped up and down on the floor mural of President George Bush in the foyer.

'Several other hotel employees angrily asked me why there had been no warning from the US.'

A HIGHLY unusual legal motion will be filed in Atlanta today asking that the entire US Department of Justice be disqualified from prosecuting the long-running Banca Nazionale del Lavoro (BNL) Iraqi loans case, according to court documents obtained by the Financial Times.

The 37-page request is being lodged with Judge Earnest Tidwell by lawyers for Mr Christopher Drogoul, the former BNL manager whose Atlanta branch made billions of dollars of loans that funded Baghdad's nuclear, chemical and conventional weapons projects.

In the motion Mr Robert Simels, chief counsel to the former BNL man, calls for the Justice Department to be disqualified because of alleged suppression of evidence and conflicts of interest that 'transcend the appearance of impropriety and evoke a sense of collusion and politically sensitive prosecution'.

Mr Drogoul, who faces trial in September on charges of defrauding BNL's head office in Rome over the Dollars 5bn (Pounds 3.3bn) of Iraqi loans, is pleading not guilty on the grounds that both BNL Rome and the US government knew of the Iraqi loans. He was allowed to change his plea to innocent last autumn after it emerged that the CIA had withheld key documents which implicated BNL Rome in the scandal.

Today's motion details a September 15 1989 report by the Pentagon's Defence Intelligence Agency (DIA) which speculated that 'the BNL mechanism was but a part of a larger Nato strategy to ensure an Iraqi victory in its war with Iran'. It also quotes from a January 31 1990 CIA memo which stated that 'managers at BNL headquarters in Rome were involved in the scandal'.

The filing alleges political interference by the Bush administration in the BNL prosecution and calls for Judge Tidwell to ask Attorney-General Janet Reno to seek a special prosecutor to take over the case from the Justice Department.

A key section of the filing is the charge that US prosecutors suppressed vital evidence provided in January 1991 by Mr Paul Henderson, the former managing director of Matrix Churchill, the Coventry-based machine tools company at the heart of Lord Justice Scott's arms-to-Iraq inquiry in Britain.

Mr Henderson, who was selling to Iraq with funds from BNL Atlanta while also briefing British intelligence services, was granted immunity from prosecution in the US in 1991. Ms Gale McKenzie, the Atlanta prosecutor who has handled the BNL case, recently attempted to revoke that immunity.

Today's court filing reveals that Mr Henderson told US prosecutors in January 1991 that he had learned from Iraqi officials that 'Rome was fully aware of BNL-Atlanta's dealings with Iraq, had approved of its dealings, and that they were an extension of a government-to-government agreement between Italy and Iraq'. If true, this would destroy the Justice Department's case that Mr Drogoul, acting alone, defrauded the Rome head office.

The court filing discloses that Mr Henderson learned of Rome's involvement from Mr Safa al-Habobi, an Iraqi official who was chairman of Matrix Churchill and who was indicted in the BNL Atlanta case.

Bolstering today's request is the disclosure of a separate legal action filed in April by the Justice Department which is alleged to contradict its own case against Mr Drogoul because it suggests that BNL Rome might have been guilty in the Iraqi loans case.

In that motion the Clinton administration argues that the US should suspend for now any plans to reimburse BNL for Dollars 340m of Iraqi loans in default.

These were backed by US government loan guarantees from the Commodity Credit Corporation (CCC), the Department of Agriculture's export credit arm.

The reason cited by the Justice Department for not reimbursing the Italian state bank is that 'it is evident that there is more than idle speculation that evidence might evolve in Mr Drogoul's trial further implicating BNL and raising obvious conflicts'.

Today's motion alleges it is a conflict of interest for the same entity - the Department of Justice - to try to prove Rome's ignorance and innocence in order to convict Mr Drogoul while suspecting Rome's complicity in order to save Dollars 340m.

The motion being filed today also argues that it was a conflict of interest for BNL's own lawyers to have been allowed in 1989 to participate in a criminal interrogation of Mr Drogoul by US Justice Department prosecutors. The filing states that since BNL was itself a potential target of the US investigation this defied 'all precepts of legal propriety'.

In addition to the ships in action yesterday, the US Navy is thought to have about a dozen other ships in the area. The US also has dozens of aircraft in nearby 'friendly countries'. Washington indicated yesterday it was bolstering its forces, moving the aircraft carrier Theodore Roosevelt from the Adriatic to the region

Alan Saldanha, aged 15, from west London, became Britain's youngest Scrabble champion when he beat 38-year-old Manchester mathematics lecturer Karl Khoshna by 407 points to 369.

Talks to restore democracy to Haiti opened in New York with a United Nations mediator shuttling between exiled president Jean-Bertrand Aristide and the military leader who deposed him, General Raoul Cedras.

Foreign tourists were among 22 people injured when three bombs exploded in the southern Turkish resort of Antalya.

JAPAN'S RULING Liberal Democratic party delivered a telling display of its resilience by increasing its strength in elections to the Tokyo metropolitan assembly yesterday.

The main opposition parties were devastated by the rise of the Japan New party, a conservative group formed last year, which might occupy a pivotal role as a potential coalition partner after the July 18 general election.

The results came at the end of a week in which the LDP has undergone its most serious split since it rose to power 38 years ago, with 56 LDP parliamentarians breaking away to form two new parties.

The Tokyo vote suggests that the general election, called after the LDP's defeat in a no-confidence motion 10 days ago, will be extremely closely fought. The main losers from the LDP's fracture might be the socialist opposition, which may see its urban support decline markedly as voters switch to new conservative parties.

About 9.3m people, almost 10 per cent of Japan's voting population, were eligible to vote in the Tokyo elections, the first test of the LDP's standing since the no-confidence vote. The results for the 128-seat city assembly throw into question the widespread assumption that the LDP could be defeated in the general election by a coalition of non-communist opposition parties, including the LDP defectors.

The LDP increased its strength in the Toyko assembly from 42 to 44 seats in the face of the deepest recession for 20 years, outcry over a string of recent corruption scandals and last week's split.

The LDP's performance is all the more remarkable because the opposition coalition has claimed it will rise to power by representing younger, cosmopolitan voters in urban areas. The LDP vote is even more robust in provincial and rural areas.

The Japan New party of Mr Morihiro Hosokawa, a former regional governor, increased its standing to 20 seats from two before the election.

The JNP rose by taking seats from the socialist opposition, splitting the non-LDP vote.

The JNP has refused to join the opposition coalition fighting the general election, but will not co-operate with the LDP.

The Tokyo vote suggests that the Social Democratic party might be the main loser from the rise of the new conservative parties. The SDP lost 18 of its 32 Tokyo assembly seats.

Parties take aim at LDP, Page 6

PRESIDENT Bill Clinton yesterday hailed the weekend missile attack on Iraqi intelligence headquarters in Baghdad as a 'success' which was more than justified by a 'cowardly and loathsome' Iraqi plot to assassinate former President George Bush.

At a special session of the United Nations Security Council last night the US defended its action by invoking Article 51 of the UN charter, which accords a nation the right to self-defence. Washington also reinforced its military presence in the Gulf by moving the aircraft carrier Theodore Roosevelt and a cruiser from the Adriatic.

Pentagon officials said that was a warning to President Saddam Hussein not to retaliate or to attack the Kurds in the north of Iraq. There have been reports of a substantial build-up of Iraqi forces near Kurdish territory.

In the attack, US warships several hundred miles away in the Red Sea and the Gulf fired 23 cruise missiles at the Iraqi intelligence headquarters in the heart of Baghdad. Three went wide, demolishing three homes in a residential area and, according to Iraqi reports, killing six people.

Mr Clinton regretted any loss of civilian life. Mr Warren Christopher, secretary of state, said the damage was minimal compared with the loss of life that would have resulted had the Iraqi bomb aimed at Mr Bush when he visited Kuwait in April been detonated.

Mr John Major, the British prime minister, backed the US action, describing it as 'a justified act of self-defence'. UK opposition politicians, however, expressed severe reservations that the US had acted without consulting the UN.

Mr Helmut Kohl, the German chancellor, said US attack was the correct reaction to 'a detestable terrorist attempt'.

Italy and France were more circumspect, limiting themselves to expressions of 'understanding' for the motivation behind the raid.

There was criticism from Arab nations and from Iran. Egypt said it wished the US would show the same concern for Moslems in Bosnia, and Jordan warned that the US attack would only lead to more 'hatred, human and material losses'.

The Arab League accused the US of applying double standards and expressed extreme regret at the assault. Among Arab nations, only Kuwait voiced support.

In Iran, the parliamentary foreign relations committee said the strike was 'an open international act of aggression which cannot be justified on the basis of any international treaties and agreements'.

At last night's Security Council meeting US ambassador Madeleine Albright displayed photographs which she said gave proof of an Iraqi attempt to assassinate Mr Bush. The photographs were said to be of a car bomb and other devices hidden in a Toyota Landcruiser smuggled across the Iraq-Kuwait border.

Some of the explosive devices uncovered were found only in Iraqi components and were not used by any other terrorist group, Mrs Albright said.

Other explosives which had been seized, including so-called cube bombs, contained components built by the same people who had made similar devices that were recovered previously from the Iraqi intelligence service.

Mr Nazir Hamdoon, the Iraqi delegate, flatly denied the charges, which he called a Kuwaiti fabrication. However, those members who spoke during the hour-long debate were clearly convinced US reprisals were justified and the Council adjourned without taking formal action.

In Washington, Mr Christopher, Mr Les Aspin, defence secretary, and General Colin Powell, chairman of the joint chiefs of staff, praised the accuracy of the US attack.

They said it was vital to strike against state-sponsored terrorism. The secretary of state expressed particular concern that Iran, which he said was also responsible for aiding terrorists, was acquiring and building weapons of mass destruction. Some US allies were doing 'far too much trading' with Iran, and he urged them to put up 'a stern front' against Iranian military ambitions.

There was no discernible domestic opposition to the US raid.

In Britain, Mr Major's full backing for the US was in contrast to opinion in other parties. Mr John Smith, the Labour leader, said he had 'grave doubts' about the wisdom and legality of the missile attack.

Mr Menzies Campbell, Liberal Democrat defence spokesman, warned that in the long-term the attack might be very damaging to the status and authority of the UN.

US rallies behind Clinton's decision, Page 2

Editorial Comment, Page 15

LABOUR WAS forced on to the defensive yesterday in the continuing row over party funding, with the leadership preparing for the quick return of Pounds 11,000 donated by a businessman wanted for questioning by the Serious Fraud Office.

The Conservative party also faced fresh embarrassment, following more claims over the weekend about large-scale, secret funding from prominent foreign businessmen. Names linked to the Tory party as big donors included Mr T. T. Tsui, the Hong Kong businessman, and Mr Octav Botnar, the former chairman of Nissan UK. The Inland Revenue has issued a warrant for the arrest of Mr Botnar, who is safe from extradition in Switzerland.

Mrs Margaret Beckett, Labour deputy leader, gave an assurance that the party would return Pounds 11,000 donated in 1987 and 1990 by Mr Charilaos Costa, a Greek Cypriot businessman, if it was found to be stolen. She denied press allegations that funds had also been given by Mr Costa to the office of Mr Neil Kinnock, the former Labour leader.

But it seems likely that this Wednesday's meeting of Labour's national executive committee will decide to return the Pounds 11,000 without delay. Mrs Beckett also said it was 'about as near certain as you can get' that her party would now decide unilaterally to disclose details of all 'substantial' donations. Labour has previously maintained that it would do so only if other parties agreed, but a change to its rules now looks likely in the autumn.

While Labour believes that its message on 'sleaze' in Tory party funding has been effective, some of its MPs believe that the intensified public disillusion with politicians generally has damaged opposition parties as well.

Some also believe it unfortunate that the issue has been a further example of the party reacting to Tory mistakes rather than focusing the agenda on areas where Labour could be seen in a positive light.

Ministers insist that the party does not intend to alter the rules which provide anonymity to all financial backers, although a growing number of Tory MPs now support publication of more detailed Tory accounts.

Lord Parkinson, a former party chairman, yesterday backed the idea, saying he believed 'in having these things out in the open'.

Mr John MacGregor, the transport secretary, defended the right of contributors not to have their donations publicised. He claimed that they had no influence on party policy or on the choice of candidate. He repeated the pledge to return Pounds 440,000 given to the party by Mr Asil Nadir, the fugitive businessman, if it was proved to be stolen, while Lord McAlpine, the former Tory treasurer, said the money should be put in trust until its source was established.

Donations row bemuses Hong Kong tycoons, Page 7

Revenue to sue Nissan UK director, Page 8

The florin - the old-style 10p piece - ceases to be legal tender on Wednesday. Up to 300m of the coins remain in circulation.

BOC, ONE of Britain's biggest industrial groups, is issuing Visa charge cards to managers to simplify and speed up payment of all small bills incurred by its UK gases business.

In an initiative which is provoking widespread interest among other large UK businesses, BOC's gases division has issued cards to purchasing managers at 30 local centres, enabling them to settle any invoices of up to Pounds 250 each.

The ceiling for a transaction, covering everything from vehicle parts to office equipment, may soon rise to Pounds 1,000. The business has about 8,000 suppliers.

The scheme, now being brought in nationally after a 12-month trial period, has led to immediate cost savings for BOC of Pounds 200,000 a year. Further reductions in overheads are expected. Most suppliers have welcomed the move, which means their bills are being settled within 10 days, on average - many within half that.

Bills totalling Pounds 1m a year are already being settled by BOC under the new system, which is proving so successful that it may be adopted by other parts of BOC's business. The group's industrial gas business in Europe has annual sales of nearly Pounds 500m a year, mostly in the UK.

Managers have been given individual credit limits, rising as high as Pounds 25,000. Visa charges a fee for each card, but there are no interest charges for BOC as card debts are paid on demand.

The initiative, which might make a significant contribution towards combating late payment of bills, follows an analysis by BOC showing that 60 per cent of its purchase and invoice matching activities involve transactions of less than Pounds 250 each. Collectively, however, they account for only 3 per cent of purchasing expenses.

Mr Trevor Rock, BOC gases divisional controller responsible for the scheme, said the intention was to 'end the purchasing manager's nightmare' of handling huge volumes of paperwork for low-value transactions. He added: 'It can also work wonders for suppliers' cash flow. The question of chasing for payment becomes a thing of the past.'

BOC expects that charge cards to pay day-to-day corporate bills will become normal within the next five years. The company has already made presentations on its new system to businesses including IBM, National Power, Esso and the Post Office.

In Tuesday's FT Review of Business Books, in the story headlined Salty Scottish tales on Page X, the correct title of Michael Strachan's history of the Ben Line shipping group is The Ben Line 1825-1982: An Anecdotal History, published by Michael Russell, Pounds 17.95, 248 pages.

GOOD-LOOKING estate cars have joined Ford's Mondeo range. The subtly-curved rear end makes the estate's styling far less anonymous than that of the saloons and hatchbacks.

The re-designed independent rear suspension is exclusive to the estate car. It minimises intrusion so successfully that Ford claims the Mondeo has a class-leading load space volume (58.3 cubic feet) and a load floor length (73.5 in/184 cm) which is virtually the same as a Volvo 940.

All estates cost Pounds 1,000 more than their saloon or hatchback equivalents. Prices range from Pounds 12,835 for a 1.6-litre LX to Pounds 14,155 for the 1.8-litre GLX and Pounds 18,450 for a 2.0-litre Ghia.

This flagship model comes with ABS brakes, alloy wheels, self-levelling rear suspension and air-conditioning as standard. Most of these features can be had as extra-cost options on other Mondeo estates.

A traction control system is available only on the two-litre models, but every Mondeo Estate has a driver's side air bag and power steering. At present, buyers get a pleasant five-speed manual gearbox without the option, but on their way are automatics and four-wheel drives (although these will have manual transmission only).

Before that come 1.8-litre turbo-diesels, which should perform at least as well as Mondeo estates with 1.6-litre petrol engines.

Even the cheapest 1.6-litre LX has 60:40 split folding rear seats, a load space cover, and tie-downs to stop heavy things sliding forward should you have to make a panic stop.

YOU ARE driving along a motorway in pouring rain when, suddenly, the steering becomes suspiciously light. Turning the wheel produces no response. Your front tyres are aquaplaning. Instead of biting on the tarmac, they are riding on a film of water that the grooves and slots of the tread pattern cannot clear away fast enough.

Aquaplaning is alarming and potentially lethal. Mostly, it happens when you hit a long puddle or a sheet of water streaming sideways across a road. But continuous aquaplaning conditions can occur for hundreds of yards on level but poorly-drained road surfaces in a deluge.

The faster you go, the greater the risk. Many unexplained wet-weather accidents of 'the car just went into a skid' variety are because of aquaplaning, especially if the tyres have wide treads and are well worn.

The best way to avoid aquaplaning is, of course, to slow down when it rains cats and dogs. But risks can be lessened by choosing a tyre like Goodyear's new Aquatred, which has just gone on sale in European markets, including Britain.

At a glance, the deep drainage channel in the middle of the tread makes the Aquatred looks like two very narrow tyres side by side. This channel lets a lot of water flow through the tyre's footprint, with the surplus pumped out to the side through slots. These are so curved that the Aquatred is a one-way tyre; a big arrow on the side wall shows the direction of rotation.

The 'twin tyre' principle has been used before on tyres for vehicles with very high performance, but the Aquatred is the first aimed at cars like Golfs and Mondeos, Peugeot 405s and Rover 400s. It costs about 7 per cent more than a conventional summer-pattern tyre, but reduces the risk of aquaplaning considerably .

At Goodyear's Mireval proving ground near Montpellier, France, last week, I watched two family hatchbacks drive round a 200-metre circle with a 30-metre segment flooded by 8mm of water. One car was on normal tyres, the other on Aquatreds. At about 60 kph (37 kph), both kept on line when hitting the water. As speed rose, one ran wider and wider until, at 85 kph (53 mph), it aquaplaned out of control. But not the car with Aquatreds.

I then drove several Aquatred-shod cars on Mireval's handling circuit. In the dry, they rode, steered and handled as they would on the best normal tyres. On a surface like that of a winding country road during a summer downpour, the Aquatreds let me corner and brake as though it were merely damp.

Ideally, Aquatreds - which will last as long as tyres with conventionally patterns - should be fitted in sets but you could start with a pair on the back wheels. They are a logical choice for motorists who give wet-weather safety high priority.

Recent Footsie entrant SG Warburg was the most heavily traded stock in the London market as one stakeholder cut its holding to 4.9 per cent, marking a footnote to the hostile takeover threat that dogged the merchant bank seven years ago.

Canadian National Railway Pension Fund Trust reduced its stake from 12 per cent, selling 15.1m shares at 705p a share to Cazenove and UBS which placed them in the market at 712p a share. Canadian National took the original stake in late 1986 from Mr Paul Steinberg's Reliance Insurance which sold the shares when it despaired of being able to launch a hostile bid. The pension fund paid almost Pounds 100m for its shares then, a hefty premium to the market value, and yesterday sold the seven per cent for Pounds 106.5m. Underlying Warburg shares fell 12 to 727p with 37m traded.

Abbey National suffered a profit downgrade by NatWest securities. The house cut its current year forecast by Pounds 27m to Pounds 640m to reflect higher than previously expected provisions in Europe and a fall in mortgage applications later this year. The shares were down 4 at one stage but rallied to close 2 weaker at 410p.

Royal Bank of Scotland eased 1 1/2 to 288p as Hoare Govett reiterated its sell stance.

Oil group Burmah Castrol recovered from recent falls closing 6 1/2 higher at 716 1/2 p.

ICI was weaker as the recently demerged chemicals group announced at its annual meeting that business conditions in continental Europe remained poor in spite of recovery signs in some markets. However, the company's chief executive Mr Ronnie Hampel hit out at the recent rash of downgrades saying: 'I don't understand what the analyst community is about. We have not changed our stance right the way through.'

Health care products company London International Group closed lower on balance as the company reported a profit of Pounds 27.89m after exceptionals against analysts' forecasts of around Pounds 33m. The headline figure was well up on the previous year and the company made a positive statement but the output from LIG's photo-processing arm was even more disappointing than anticipated. The shares closed 6 lower at 176p although Hoare Govett remained positive focusing on the yield and arguing that the company was 'managing well in a very difficult environment'.

Against a largely flat sector Boots continued a modest climb, adding 5 1/2 to 450p. GUS 'A', subject of enfranchisement hopes recently, enjoyed the fillip of a Nomura buy note and improved 4 to 1763p. Courts, one of the market's star performers this week after good results, moved its rise on the week to 114 and ended the day at 632p. It also benefited from the recommendation of NatWest.

Food manufacturers' shares went their separate ways with dairy-related issues mixed despite market belief that a milk price rise had been agreed between the Milk Marketing Board and the supermarkets. In reasonable volume of 3.4m for a quiet day Northern Foods added 3 to 276p while Unigate gave up 2 to 344p. Unigate had suffered from market doubts over progress at Nutricia, a Dutch baby food and nutrition company of which it owns a third, but these were stemmed by the end of trading.

The chancellor's hints at possible higher taxes in the November Budget summoned the spectre of higher food levies to the market and depressed a couple of large retailers, according to one analyst. Sainsbury lost 11 to close at 488p and Tesco gave up 5 to 215p. Another blamed the performances on a generally weak sector and investors seizing the chance to exit after a reasonably buoyant period. Tesco denied press reports of a boardroom battle.

The market responded enthusiastically to an announcement by David S. Smith, the paper and packaging manufacturer, that it is buying Spicers Group, the office products wholesaler, for Pounds 95m, raising the cash via a one-for-four offer at 305p a share. A bullish profit forecast by the company helped the shares rise 16 to 359p.

Bid speculation and general confidence boosted some northern brewers. Hardys and Hansons, the Nottingham-based company, moved ahead 16 to 247p. Joseph Holt, the Manchester-based family concern, advanced 50 to close at 3075p.

Greene King was not so fortunate: the shares lost 13 to 516p with dealers attributing the fall to a stock overhang.

Generally, the sector was in retreat with Whitbread 'B' the only large stock to show buoyancy - putting on 18 to 998p.

RICARDO has sold Ricardo Technical Communications to a subsidary of Vosper Thorneycroft for Pounds 200,000, payable on completion. The disposal respresents Ricardo's departure from a non-core activity and the proceeds will be used to reduce group debt.

MR-DATA Management Group has acquired the outstanding 30 per cent in Scanmedia, its subsidiary, for Pounds 400,000 in shares.

Difficult trading conditions in the second half affected the full year's performance at Syltone, the transport engineering group.

The pre-tax profit worked through at Pounds 909,000 for a total of Pounds 2.13m for the year ended March 31 1993, compared with Pounds 2.87m.

Mr Tony Clegg, chairman, said the first quarter of the current year had been 'more encouraging'. He saw positive signs of an upturn in the US, while at home the 'worst is behind us'. Continental Europe, however, remained difficult.

Turnover rose to Pounds 36.7m (Pounds 35m) with overseas accounting for Pounds 20.2m (Pounds 18.3m). Earnings per share came to 15.03p (22.22p) and the dividend is held at 9.45p with a final of 6.3p.

Also proposed is a 1-for-1 scrip issue.

In the six months ended March 31 1993 pre-tax profit of Willoughby's Consolidated dived from Pounds 1.59m to Pounds 225,000.

In line with distributing the maximum amount of cash remitted from the Zimbabwean operations, the interim dividend is halved to 0.5p. Earnings fell to 2.8p (14.9p). The directors warned that the final was likely to be reduced from the 1.5p paid last time.

Lower profits reflected reduced gold production, increased mine working costs and a delayed cattle slaughter season.

The outlook was better, with higher production anticipated at the mines, a stronger USDollars price of gold and high slaughter prices for cattle.

Comparisons have been restated for FRS 3, and the profit pushed up by Pounds 109,000 on a change of accounting policy for livestock.

DAVID S SMITH, the paper and packaging group, is to buy Spicers, the UK's largest wholesaler of office products, from Svenska Cellulosa Aktiebolaget of Sweden, for Pounds 95m.

The deal is to be financed via the issue of 31m shares at 305p, or 38p below the closing price on Thursday night. The price fell after the announcement but finished 16p up at 359p.

Smith also estimated pre-tax profits for the year ending May 1 would be Pounds 27.1m, up from Pounds 15.4m after exceptional items. The group is recommending a 7.25p final dividend, giving 10p for the year (9.5p).

The deal marks a return for chief executive Mr Peter Williams to Spicers which he sold for more than Pounds 250m to SCA in 1990, when he held a similar position at Reedpack, the management buy-out from Reed International.

Mr Williams said the deal would be marginally dilutive in 1993-94 but would enhance earnings thereafter. Smith is buying Spicers at an 11.3 earnings multiple.

In addition to the UK operations, which made Pounds 12m operating profit from sales of Pounds 227m in 1992, Spicers has a lossmaking French operation. Mr Williams was responsible for developing the business but says recently 'management lost complete control of the business'.

On sales of FFr359.3m in 1992, Spicers France made an operating loss of FFr45.4m. Mr Williams said he was not yet sure the division could be turned round but there were no current plans to close it.

If it was closed, however, the acquisition would enhance Smith's earnings in 1993-94. And closure would cost Pounds 10m implying a 12.5 multiple.

Spicers supplies about 10 per cent of the office products market and 50 per cent of the wholesale distribution of office products. It also makes envelopes and other stationery products in the UK.

On Smith's results to May 1, Mr Williams said a strong performance from Kaysersberg Packaging in France, acquired in 1991, had been offset by an overall deterioration in the results of the UK paper and packaging industries due to pressure on margins.

German recycling legislation continued to distort the European waste paper markets, allowing continental recycling companies a ready supply of cheap recycled material.

Mr Williams said immediate prospects in the UK were encouraging. The first half would , however, be affected by the scheduled three month closure of one of the three paper machines at Kemsley.

The placing, which is subject to a 1-for-4 clawback for shareholders, is underwritten by SG Warburg. The brokers are Credit Lyonnais Laing.

See Lex

HERON International, Mr Gerald Ronson's property and trading group which is hoping to gain creditors' approval of a Pounds 1.4bn refinancing plan next Monday, has sold a shopping centre in Sunderland for Pounds 39m, to Land Securities. The price was above the value assumed for the property in the business plan.

Mr Ronson is expected to tell creditors at Monday's meeting that more than another Pounds 100m of disposals have been lined up, also at prices above book value, and ahead of schedule.

The success of the business plan depends on property values recovering. Mr Ronson said the disposal 'is an indication of our ability to achieve excellent values for creditors.' He added: 'I am confident that we will improve upon the values at which the property portfolio has been assumed in the business plan. The UK investment property market is showing the first signs of recovery.'

The restructuring proposals have been approved by Heron's 82 banks but there is some opposition from bondholders and other creditors.

The shopping centre, called The Bridges, comprises 80 units with annual rents totalling Pounds 3.2m, giving an initial yield of over 8 per cent.

CLUB Mediterranee, the French holiday group, suffered a sharp decline in attributable net profits, to FFr2m (Dollars 350,000) in the six months to April, from FFr20m a year ago, writes Alice Rawsthorn.

The group, which blamed its poor performance on the 'bad economic environment', would have suffered an even steeper setback but for an accounting change which raised net profits before minorities by FFr46m.

The US business improved in the first half of this year, but the group was hit by difficulties in Egypt and Senegal.

MATRA-HACHETTE, the diversified missiles-to-magazines group, will show a much better profit this year, Mr Jean-Luc Lagardere, president, told shareholders yesterday.

For 1993, the first full operating year after he merged the Matra aerospace, transport and telecommunications group with the Hachette publishing business, Mr Lagardere forecast that group turnover would remain stable at FFr51bn (Dollars 9.15bn).

Improved profits would come from declining financial costs.

SCORES of armed South African rightwing whites yesterday stormed the country's constitutional conference centre outside Johannesburg with an armoured car in an attempt to halt negotiations on the country's democratic future.

About 1,000 heavily armed police took little action against the members of the Afrikaner Volksfront who beat up black women delegates and journalists, and daubed the walls of the negotiation chamber with slogans demanding an Afrikaner homeland and accusing the ruling National party of treason.

Terrified delegates fled, leaving about 100 men and women, - all toting weapons - occupying the chamber where South Africa's first multiracial constitution is being written. About 3,000 more waited outside.

President FW de Klerk vowed to make quick arrests, while Mr Nelson Mandela, president of the African National Congress, called for the immediate detention of rightwing leaders, saying the arrest of junior people would not be sufficient.

'The first arrests will take place maybe tonight, tomorrow. Immediate action is being planned,' Mr de Klerk said after supporters of the Afrikaner Volksfront had smashed through the glass doors of the centre with the vehicle and stormed the chamber where negotiators were debating an end to white minority rule.

Mr Mangosuthu Buthelezi, Inkatha Freedom party leader, condemned the raid as 'totally and utterly reprehensible'.

Many protesters cited the fact that, on the eve of the assault, constitutional negotiators had voted by an overwhelming majority to deny the demand of the rightwing Conservative party (which represents ultra-radical whites) for Afrikaner 'self-determination' in a separate white state.

Every protester had his own justification for the attack.

Young Johan Cronje, carrying a flag of the old Boer republic of the Transvaal, insisted that 'all we're asking for is land. If you don't have land, how can you live?' while Fred Rundell, a member of the Volksfront executive, drew a parallel with the liberation of eastern Europe. 'What happened here today was a spontaneous uprising of the people like what happened in Romania,' he argued.

Within hours, the 26-party negotiating forum was back in business, with the chamber walls repainted and even the Conservative party (which helped lead the attack) seated at its accustomed place.

Two people died and 33 were injured when a Dutch tourist bus and a lorry crashed near Liege, eastern Belgium.

Seventeen mental patients and a nurse died in a fire at a clinic in Rennes, western France.

BRITAIN, we are constantly being told, has not yet come to terms with no longer being a world power. How much truer this is of our sporting prowess, as the events of the past few weeks have demonstrated.

I have just returned from a visit to our last colony, Hong Kong, and the shock waves of the England soccer team's defeat at the hands of the US could be felt on the shores of the South China Sea.

Among the British community in Hong Kong such a disgrace was felt far more keenly than obscurely distant rumblings of domestic discontent about John Major's leadership.

I flew back just in time to attend the Saturday of the Lord's Test against Australia, supposedly the highlight of the English cricket season. By the end of the afternoon, as the England batsmen fell more than 400 runs short of the Australian total, I wished that my flight had been delayed for 12 hours.

The England supporters around me sat silent. The press, of course, observed no such restraint, and the sports writers since then have been vying with each other in their own private competition to see which of their number could most offend the England cricket selectors.

There, I am afraid, lies the heart of our problem. The pundits who are paid to tell us what we think about England cricket, seem unable to believe that the team might possibly be less talented, simply worse, than any other nation. Their writings are based on the false premise that England are the premier cricketing nation and that it is only the stupidity of selectors and managers which prevents us from demonstrating this to upstart colonials.

If only, they moan, we had not selected Smith, Gatting and Lewis and instead picked Lathwell, Thorpe and Igglesden, then we would have been all right.

We seem unable to accept, gracefully and sportingly, that Australian batsmen such as Michael Slater and Mark Taylor might just be better than anything we can produce; that no matter how cleverly our team is selected, we are destined to lose to a better side. The same disease afflicts England's soccer pundits.

If England ever lose an international match, it cannot be that a foreign nation actually has a higher class of player. No: it must be that great talent has been inadequately harnessed by a bad manager. An inability to come to terms with Britain's decline as a world power on the political stage is somehow more understandable.

Britain was, in trading and naval terms, the greatest empire the world had seen. We are justified in being discomfited by our fall into mediocrity, even if it has been happening for 100 years or more.

But in sport we have no such excuse for delusions of grandeur. Englishmen imagine that they were once a great footballing power. In fact England have only once won the World Cup, and that on home territory with the aid of a Russian linesman.

Why should England not lose at soccer to the US, a vastly more populous and resourceful country? It is not even as though we field a British soccer team, which would benefit from the skills of the Celtic fringes. Instead Britain continues to imagine that it has the resources and talent to field not one but four separate international sides.

As for cricket, the Ashes, for which England compete against Australia, are themselves a symbol of our sporting eclipse and, in the 100 or so years since, Britons have consistently been found wanting by the country of Bradman and Border.

Perhaps it is only in lawn tennis, another of the games we invented without working out the humiliating consequences, that we are realistic.

At Wimbledon we accept that defeat can be heroic, and that victory is not a right. Does it matter that England is a second rate sporting nation?

One person to whom it undoubtedly does matter is John Major, the prime minister. How much better it would be for him if, just for once, he could be identified with success.

Dominic Lawson is editor of The Spectator.

DEALERS lounged in booths tricked out like Mayfair drawing rooms, staring at the tanned legs of Girl Fridays sashaying down the aisles. Among the Sainsbury bag-carriers the occasional shopping queen stood out - mane of hair, gold bangles, her decorator dancing attendance. It was June, the peak of the London selling season, and a stiflingly quiet day at the Olympia antiques fair.

Halfway down one aisle, beside a nude Apollo, I found the exotically-styled Edric Van Vredenburgh, the very picture of an antique dealer with his grizzled beard, pony-tail, humorous eyes and morose expression.

The way he talked about the recession prompted the question: so how is your business different to running a hardware store?

'It's not any more.' He became emotional. 'It's not. That's just the point. When I first came into the business you could be an antique dealer first. You bought and it was - this is a very important word - fun. You could enjoy it. You worked hard. I worked six days a week, seven days a week. I enjoyed it. I made a living. I didn't make a fortune. But I had a lot of fun.

'Now, you have to be an accountant, you have to be a tax consultant, you have to know about foreign exchange. It's hard.'

Why don't you pack it up altogether?

'Can't afford to. I've got to make a living. Having done it for 30 years it's what I know how to do best.'

Like any businessman in a recession - and more prudent than some - Van Vredenburgh began running down his Pounds 500,000 inventory and paying off his overdraft 18 months ago. Now in the clear, he has further decided to give up his little gallery in Bury Stret, St. James's, at the heart of the London antique trade, and deal from his house in Portobello Road instead. Why?

'Selling costs a lot of money today, especially in this city. The wheel clamp is a nightmare, parking is a nightmare, rates are a nightmare and rents are a nightmare.'

Worse still, people were not coming to London any more. By 'people', Van Vredenburgh means Americans. What about the Japanese? 'Their houses are too small to accommodate antiques.' He blamed the big auction houses for shortening their selling season, suggesting that Sotheby's and Christie's were more interested in New York, Monte Carlo and Geneva than London. 'They are more like real estate agents than antique auction houses now, more accountant-driven than expert-driven.'

It is the kind of stock-in-trade pessimism you would expect from a farmer grumbling in his Jag. The fact is that Van Vredenburgh, 48, is also beginning to feel his years.

'I've got to an age where I know there are other things than dealing in antiques,' he said finally.

What are they?

'Well, people, among other things. Working with people, enjoying people's company. There was a little notice quoted in a newspaper last year about a gallery in St. James's that said 'Gone mushroom picking or fishing'. It happened to be me. I rather enjoy mushroom picking. If you have to run a gallery you don't have time to do things like that.

'And I want time to travel as well. I'm a hundred per cent an antique dealer. When I'm abroad I like to look at a museum or a house. It's important to do that. You're learning the whole time. I've realised in the last eight to ten years how little I do know.'

Are there other reasons for giving up the gallery?

'Yes. You find less things.' In auctions that week he had found barely half a dozen things worth looking at and only one he really wanted, a circus painting, estimated at Pounds 6,000 to Pounds 8000. 'I went to sixteen and a half. It went to eighteen. I wasn't even the underbidder.'

He suggested another reason for pessimism: Aids. He has noticed that some of his best clients, homosexual decorators from America, have just disappeared.

On the other hand the financial disaster of the Lloyd's insurance market, which this week reported a Pounds 2.9bn loss for 1990, will bring a lot of antiques on to the market. The Antiques Road Show on television has flushed objects out of attics. But the trade had become too commercialised. 'Everything is an antique, from a Dinky toy to a Roman sculpture. As soon as the money-men get hold of anything they do it to death.'

It seemed odd for an antique dealer to disparage money-men. Are you a typical dealer? I asked him.

'No. I'm probably more extrovert than most, in the way I express myself, in my behaviour, in the objects I buy.'

I thought all dealers were showmen and wheeler-dealers, I said.

'Some may be. I hope I'm not any of those things. I would hate ever to be called a wheeler-dealer.'

This dealer is descended on his father's side from Dutch burgomeisters who emigrated to the US in the 17th century. His mother's family were Russian Jewish refugees. The son, academically weak but visually acute, was a frustrated architect who at the age of 17 joined his father, a former entomologist at the British Museum who had gone into porcelain.

Father and son fell out 15 years ago but have made it up since. 'Probably if I'd gone to work for someone else first our attitudes to each other would have been different,' Van Vredenburgh said. 'It's a typical father-son thing.'

He considers himself a small dealer. The most he has paid for an object is Pounds 100,000, for a 16th century marble bust of the Roman emperor Commodus at the Castle Howard sale last year. But what sort of dealer?

'I've been asked that question many times. It's been said I have an eclectic taste. I like beautiful objects, I like a beautiful painting, a beautiful piece of furniture, a beautiful piece of pietro duro, and sculpture.'

Do you buy only things you like yourself?

'Generally speaking, yes. When I say I buy for me, I buy first, I hope, with knowledge, second with taste - my taste - and then I hope the client likes my taste.'

Have you anything you wouldn't ever sell?

'Not now. If you'd asked me that question five years ago I would have said yes. I've got quite a few things at home I've had for more than 10 years, some even for 20 or 25.'

Are you sentimental?

'Not about the objects.'

Do you ever get sick of objects?

'For a while, sometimes. But then something comes up and it does something to you. I think more than the pot of gold, the great bargain, the big windfall, you get your excitement from the really beautiful or interesting thing you come across occasionally.'

What about people? Are you hard-hearted with them?

'I can be both. If I don't like someone I can be very tough. If I like somebody I think I'm pretty soft. I have both sides to my character. I mean, I've fallen out with a lot of antique dealers because I don't like their attitude. I don't like dishonesty. For the first time in a long time I am suing someone who owes me money. I'm only doing it because the person wouldn't discuss it.'

I asked about stolen goods. 'It's not something I come across very often. There were people that one knew in London who imported things from Italy, for example, that were almost certainly stolen. It is usually easy to tell, and word soon gets round.' But once he was offered a half share in a bronze head which he discovered had been stolen from a church in the City.

How does a buyer know if he's dealing with a rogue?

'How would he know if he goes to someone who's advising him on stocks and shares? He jolly well goes and finds the right person. If you just walk into a shop you don't know. If you are spending money you find out about the person you're spending money with.

'The problem with a lot of clients is they don't expect the person giving them advice to earn money from it. What are they in business for? Most people who have money to spend make it in business in some form or another. They expect to be paid, and usually quite well. But when it comes to spending money they'll spend it very freely without getting advice and then moan about it afterwards.'

Do you bargain?

'I'll discuss, yes, why not? I prefer not to. It depends on the client. Personally, I prefer to know my client and say I want such-and-such a price. That's it. I don't want to have a big fight.

'On the other hand there are some people who will never - never - pay the price you ask them.'

The richer people were, the more they disliked talking about when they would pay. Such talk they considered vulgar. 'So I have this 'when-do-you-pay price'.'

Van Vredenburgh said his mark-up varies from 30 to 100 per cent depending on the object. 'To average 100 per cent is very rare in this trade, in spite of what punters think.' Bargains, too, were rare. 'You could not base a business on them.'

Have you made a lot of money?

'I've made a living, not piles in the bank. A good living, but I still have to work.'

What would make you give up altogether?

'I don't think I could altogether. There's still enough to enjoy. It gets less and less, but still enough. If I did extremely well - when I say that I mean if I had between a million and five in one fell swoop, I would have no doubt about moving aside and spending far less time on it.

'It's like any other business: keep your eyes open, keep changing, be modern. I've given up the shop before. I might open a shop again, who knows?'

'WESTERN EUROPE enters the 1990s with a new-found confidence that would have seemed fanciful only a couple of years ago. Gone are the pessimism and talk of 'Eurosclerosis' bred by chronically rising joblessness. Instead, confidence has returned, employment expansion has resumed and investment has surged.'

This passage from the February 1990 edition of World Financial Markets, published by the bank, JP Morgan, is not reproduced in any spirit of malice or Schadenfreude (tee hee) but as a reflection of how people saw things in those distant days. The Copenhagen summit showed how distant they are.

As Die Welt put it: 'Nobody thought that the blooming European economy would fall behind the US and Japan. So that brings up a painful question: will Europe refuse this challenge, just as it did the conflict in Yugoslavia? The 20m unemployed in the EC destroys the reputation of one of the great world economic organisations which sang to its citizens of the welfare-promise of the internal market and the Union-anthem of the 'splendid times' of Maastricht.'

As Die Welt noted, and JP Morgan said at the time, the optimism of those days was based on the belief that the single market could solve most of the economic problems while the collapse of of communism had solved the political. The latter event has, in fact, supplied one of those themes dear to novelists of the lesser kind: how a man wastes away once his lifelong enemy dies.

Europe provided the main arena for the ideological battle. The western victory was that of the European Community; but the battle absorbed so much physical and intellectual energy that the victors were left wondering what to do for their next trick. They came up with two devices. The single market was already in the making and had to be completed. Then, Maastricht, and the plan for a nicer kind of union ensured that navel-watching became the order of the day. On a wider front, the western system no longer had to prove itself; it had won.

That was before unemployment resumed its climb. But the great thing about having 20m west Europeans unemployed today, as opposed to 60 years ago, is that there is little likelihood of those responsible being challenged by alternative views. Contrary to some over-heated reports, fascist storm-troopers are not stomping through Bonn or Berlin. And the nearest thing to a red mob is Liverpool FC Supporters' Club.

Choices do, however, remain. A theme of the Copenhagen meeting was what was often portrayed as the unfair competition coming from South-East Asia and even the US. Niels Helveg Petersen, the Danish foreign minister, spoke disparagingly of US society - it was a regrettably unregulated model which had led to the creation of a potentially criminal underclass. Asia provided the 'uncaring' model. Europe had to maintain its specific role as the supplier of free market welfare.

The trouble is that this system translates automatically into government spending and extra costs. In Asia, welfare comes from self-provision, the classic example being Singapore's Central Provident Fund - in effect, a system of forced saving. The government exacts a levy on incomes to provide direct investment in the national economy which, in turn, becomes a pension fund.

So, if the premises are true, the oriental system leads to saving and investment, the European to excess state spending and budget deficits. Europe has made its choice, which would seem to be the civilised option. And, as Oliver Wendell Holmes (or someone very like him) said: 'Taxes are the price I pay for civilisation.' But it has produced a system that has to 'care' above and beyond the purposes for which it was designed originally.

The response, as we have seen most notably in France, is to spread a new myth of the Yellow Peril. The Paris papers write of 'Asiatic Ants' who threaten Europe's prosperity. While this is typical of the nonsense emanating from that capital these days, it is hard to avoid the impression that, in fact, Europe is coming to see itself as entering a new sort of ideological war to replace the the old one.

Yet, even at the risk of making my own observations appear rather less pertinent than I would like, we are probably the victims of Euro-morosite and Euro-angst. After all, if all these ghastly things we talk about are true now, they cannot suddenly have become true in the past three years.

Some time soon, I expect I shall be writing: 'Western Europe is entering the 21st century with a new-found confidence that would have seemed fanciful only a couple of years ago. Gone are the pessimism and the talk of Euro-uncompetitiveness bred by chronically rising joblessness . . .' Well, you can write it yourself.

James Morgan is economics correspondent of the BBC World Service.

YESTERDAY I attended the morning editorial conferences of The Daily Telegraph, The Sun and Daily Mail - three staunch defenders of the British way of life. I do this periodically, for it keeps me in touch with right-wing opinion. I am always welcomed warmly.

The reason I am warmly welcomed is that I am related, by birth, to all the great proprietors and to many of the editors of Britain's national newspapers. I have a smart-card to prove it, a golden piece of plastic that whisks me through the security cordons that all newspapers use to shield themselves from readers.

As usual, the conference at the Telegraph resembled a full-dress planning meeting for a spectacular act of war. There were maps on the walls and stacks of computer print-out. On the editor's desk stood a life-like model of a Trident nuclear submarine. When the editor walked in, everyone stood and saluted him. He was wearing an air vice-marshall's cape and a bombardier's plumed hat that was not of this century.

Gentlemen, he said. I liked this morning's paper. It had blood, sweat and tears. It offered high-precision gunnery. Also excellent work by the cavalry. But where was the wretched infantry? Our coverage of Michael Mates' resignation was without doubt first-class. And the sports desk got its finger out with some rousing stuff on the battling Brits at Wimbledon. Peterborough shone. Arts was up to scratch. And I liked the tailpiece letter from Ian Hamilton Fazey, about Mekons and dinosaurs.

But there were blemishes, gentlemen. The weather report offended me. Let me quote from the start: 'General Situation: Patchy mist and fog in England and Wales will soon clear to leave a dry day with fairly sunny skies. However, it will become cloudier in the north later, but still bright.' It is expressly stated in standing orders, gentlemen, that the word however is never to appear anywhere except in editorials - least of all in the weather.

Second, there was no reference this morning to world war two. I have told you repeatedly that the 50th anniversary of world war two is to be a daily feature of our current circulation drive. Next year we will be celebrating D-Day itself. Starting Monday, I want a blockbuster summer offensive to establish the scene. For a month I shall edit the paper from an office in Bayeux. That is all, gentlemen. Dis-miss.

Round at the Sun, I expected the editor to be furious at the way his staff had squandered the best tabloid story of the week. It started: 'Giving up sex can kill you, a boffin warned yesterday. Professor John Copeland claims our bodies waste away when we stop having nookie. He said: 'Once reproduction has stopped, maybe the body gets the message that its usefulness has ceased'.' The story was crammed into just 9 centimetres.

Come to think of it, 9cm is probably par for the course for most Sun readers. But the editor was indifferent. He looked broody and troubled. Apparently (sources tell me) he has not been the same since the FT afforded him space to propagate his peculiar brand of Euroscepticism. The experience went to his head. Now he has gone all serious. Has ideas above his station.

There are a hundred and one things we should be doing, he screamed at his minions yesterday. I want major Sun series on EC competition policy, cross-border deals, the transparency of merger control, Bundesbank interest rate policy, EC employment prospects, privatisation, banking and financial deregulation, labour costs and productivity, and whether Russia's plan to offload rare earths and metals has a strategic downside for companies in Britain. We owe it to Sun readers to keep them abreast of serious news. There is more to life than tits, you know.

At the Daily Mail the editor looked pleased with yesterday's issue, which mixed good-to-middling columnists with Mail-type clamminess (Andre Agassi's chest hair; Raine Spencer's diet).

In accordance with Mail tradition the editor conducts his morning conferences while sitting on a throne, attended by flunkies and a sweet choir of eunuchs. Yesterday, in front of him, prostrate and forlorn, lay a broken, penitent figure whom I took to be John Major. But I could not approach the throne. The crush was too oppressive. So I tiptoed away, dumbstruck and awed.

THE FASCINATION with contemporary American theatre continues to spread. One would not normally expect the British premiere of a play about veterans from Vietnam to take place in Wiltshire, but here it is.

At the Salisbury Playhouse, Sam Shepard's States of Shock is given one of the best sets I have ever seen in a studio theatre. As the title suggests, everything about the play is in varying degrees electric. The set includes thin neon lighting, but also some lovely street lighting of the kind that is just coming back into vogue. It looks old, but relies on modern technology.

The stage is littered with hundreds, possibly thousands of small photographs, some of them torn up and on the floor, others stuck on the walls. Before the piece opens an elderly white couple whom I first took to be dummies are sitting at a table. They turn out to be real, with memories of an American war long before Vietnam. That was the war between the states, as southerners still call it. Shepard is very precise about his titles.

The play itself has a concealed shock. On the face of it, an American colonel is looking after a mutilated returnee from Vietnam who is supposed to have tried to save the colonel's son from being killed in an incident of 'friendly fire'.

The colonel appears to be trying to reconstruct what happened. It is a test of your pyschological instinct how quickly you guess that the mutilated victim is in fact the colonel's son. David Burke's colonel cannot bring himself to accept that his boy did not either die or return as a hero.

There is another twist. The mutilated victim does not realise either until late on that the colonel is his father. None of that is wholly explicit. Nor is that all. Gradually the elderly couple come into the play, first mildly complaining that their clam chowder in the American diner has not been served while the men from Vietnam can get a banana split in five minutes, then enjoying a return to an American past where rebellious youth is beaten into shape.

American sentimentality comes in as well. The flag never leaves the stage and the play ends with everyone quietly singing 'Good Night, Irene'. Intellectually it may not add up, but it is an immensely powerful spectacle.

The production is part of the Royal National Theatre's Springboards Festival under which the RNT is seeking to extend its studio techniques throughout the country. The Salberg Studio at the Salisbury Playhouse is an able and willing pupil. Lucy Hall's set deserves the highest praise and Deborah Paige, the artistic director at Salisbury, here shows an immaculate command of detail. Nearly everyone to do with the performance, including very much David Burke, has had some experience of the RNT or the RSC.

There is one reservation. I admire Sam Shepard's style, but there is just a possibility that he is becoming a bit of a cult outside his own country. I doubt if he has much to teach British playwrights. States of Shock is technically brilliant, but it lasts barely an hour.

Salberg Studio, Salisbury Playhouse until July 3. (0722) 320 333

AWAY FROM arias, starring roles, magnificent sets, epic stories, Janacek's The Cunning Little Vixen is one of the jewels of opera. Only a composer coming from outside the standard operatic tradition could have lighted upon a cartoon story of a young fox and told it in music of such radiant beauty as to make his work one of the great human operas of all time.

The piece has none of the ingredients for an international company. (How could one possibly cast roles such as the Caterpillar, Mosquito and Chief Hen with jet-setting stars?) So it was a surprise when the Royal Opera put on its first ever production of this opera in 1990, and sung in English, what is more. This week it has returned for its first revival, opening during the Covent Garden Proms week alongside more standard fare.

Bill Bryden's production has been widely praised. It is abstract rather than literal, imaginative, poetic, humorous, all the things one wants a production of this delightful opera to be, except that its ingenuity sometimes gets the better of it. Janacek's aim is to show us how the natural world outlives us all, how it is unchangeable, ever-renewing. But this staging represents nature by a machine, in the form of large concentric circles turning like cog-wheels in a clock, which is difficult to reconcile with the opera's fundamentally green message.

Perhaps the intention was to tell us that nature is timeless. If so, the visual metaphor makes the wrong connections. Best to set that aside and enjoy instead the way the production communicates a wide-eyed delight at the natural world and a high musical standard.

In the duet between the Vixen and the Fox Janacek explores more touchingly than in any of his human operas the first faltering steps of young love. 'Do you smoke?', he asks her. 'No', she replies, with the defensive afterthought, 'not yet]' Lillian Watson is marvellous again as the Vixen, as spritely and youthful in movement as she is in voice, and she is partnered with a caring, confident, but never pushy Fox from Rita Cullis.

Anthony Michaels-Moore sings well as the Forester, who is younger than usual. He seems a resourceful man, who would not be caught out by the playful antics of his young vixen; a degree of mature wisdom, of worldly depth is missing. Donald Adams as the Badger stood out among the animals, Robin Leggate's Schoolmaster and Roderick Earle's Poacher among the humans, because they managed to get more of the words across - a constant problem throughout the evening.

It may be that Bernard Haitink will be able to balance words and music more effectively as the performances continue. The orchestral playing is already above average and Haitink has the gift for making this music release its immense human sympathy without lapsing into sentimentality. Ideally the opera does belong in a smaller theatre, where its scale would fit. But I would not for one moment wish to deprive the Royal Opera's audience of the opportunity to discover one of 20th-century opera's minor masterpieces. (There are further performances until July 10.)

In Arthur Jacobs' Garsington piece on Thursday the director of Ariadne auf Naxos should have read Aidan Lang

The Butcher of Baghdad by John Spurling at the Grace Theatre (Latchmere) is a series of stories beautifully angled at President Saddam Hussein. It amounts to a combination of 1001 Nights and the last hours of the Gulf War in February 1991. This is no play for revisiting, but it makes thoughtful arresting theatre.

The scene opens with a cleaver swinging like a pendulum. We are in Saddam's command bunker, waiting for reports from the front. The play never names Saddam, but refers to him as President or by titles like 'Commander of the Faithful, Vice-Regent of Allah.' The President's mistress, Shahrazad, beguiles the hours with tales of the Caliph and his poet-buffoon Ishak.

A skein of stories unwinds, beginning with a tangle over a lamb cutlet in 'The Poet and The Butcher' and continuing with short homilies on power and fate in 'The Story of the Indispensable Wasir' and 'The Story of the Death of Abdullah The Food Taster.' Each illustrates the implacable face of Islam where the Caliph's whim is law, his power infinite and his decrees absolute. Each calls up memories of the September 1980 offensive against Iran, and of how insignificant the 400,000 losses then and the 100,000 losses now seemed to be in the eye of Allah. And each recognises the demographic diversity of a country not much bigger than Sweden filled with Shiite Moslems, Sunni Arabs, Kurds and Christians living uneasily together.

The contemporary scenes are researched, and Spurling makes a blustering encounter as the President hears of the Scud missile which hit the Daharan air base in Saudi Arabia, killing 28 Americans. Eventually, the President broadcasts his satisfaction with his army's great victory, and settles on a ceasefire. Shahrazad has poisoned herself in attempting to kill him, and as she dies, it means nothing more than a speck of sand on the beach.

The acting, particularly from the opal-voiced Mary Keegan and the gravelly David Acton as Shahrazad and the President, makes the most of the small stage. Director Andrew Visnevski and designer Katrina Lindsay manage the movement and lighting to keep the action flowing and lucid.

Grace Theatre at the Latchmere (071 228 2620) until July 10

THERE COMES a time in the life of moderately successful actors when they look for a regular annuity to tide them over the quiet periods. Creating a turn built around a character from the past - or present, fact - or fiction, who is of sufficient popular interest to be manipulated into a one man, or one woman, show is the perfect insurance policy.

Maggie Ollerenshaw is a familiar TV face, a solid supporting actor in shows like Open All Hours and First of the Summer Wine. She has alighted on Vera Lynn, the Forces Sweetheart, as her vehicle, prompted as much by a passing physical resemblance to the star as to the excitement of her career. It is a show that goes down well in places like Westcliff-on-Sea where fans of Vera, now 76, are likely to be gathered in fair numbers.

The very ordinariness of Vera Lynn's life gives it a certain fascination, and makes her achievements more staggering. She was born Vera Welch in East Ham, and by her early teens was earning 7s 6d for belting out three songs in working men's clubs (one and six extra if she won an encore). She was a factory girl for one day but found life on the road as the crooner with the Ambrose band more congenial. Her big break came with the War, when her sentimental songs touched the popular spot. The weekly audience of 16m for her 1941 Sunday night radio show, beamed to the troops, has never been bettered.

Ollerenshaw could have been more forthcoming about why the BBC was constantly anxious to drop Lynn, and on the War Office's anxieties that the sentimentality of her music might make the forces homesick and Bolshie. But this is no social document, more a browse through a familiar scrapbook. She delivers the data on Lynn's public, and placid, life (she has stayed happily married for over 50 years) straight and unadorned. Ollerenshaw starts nervously, but by the second half, when she tackles Lynn's great adventure, entertaining the Forgotten Army near the front line in Burma, she has acquired some of the bravura of her subject.

A slight surprise is that Ollerenshaw is no singer. Her voice is tremulous and unimpressive compared with Lynn's melodious foghorn. By the end, stomping around the stage in khaki, she was lively enough to cheer up all the old dears in the audience who thought they had come to see the real Vera, and who were desperately keen to join in the choruses.

The Palace Westcliff has not made a major contribution to British theatrical history, apart from giving local boy Ray Cooney first runs for his farces, but it earns 74 per cent of its revenue, which suggests it has the local audience taped. It is bullied rather by Eastern Arts, which would like it to be a receiving house for artsy touring groups rather than the regular creator of its own productions, and its subsidy has been halved to Pounds 45,000. But in its unostentatious way the Palace keeps the flag of both drama and light entertainment flying in difficult territory.

TWENTY-ONE years ago this year, the Royal Opera and the Midland Bank launched the Covent Garden Proms. Critics have always praised this venture, in which the Stalls' usual 546 seats are removed for a week to make room for 700 Prommers - who sit, squat, sprawl or lie on the red carpet. These Prommers have always been more attentive and more enthusiastic than those they replace (some of whom now pay Pounds 98 per seat). But, as the late Harold Rosenthal, then editor of Opera, wrote in 1974, if just one Prommer becomes a regular Covent Garden patron, the Proms will have been worthwhile.

It so happens that the first Prommers, in September 1972, included Richard Fairman, (who reviews the Vixen, above),then a schoolboy who had recently finished his A-levels. And, in April 1974, I - then a first-year undergraduate - attended all six Proms performances. These included the first ballet Proms, which were my first taste of great choreography and great dancing.

This week I decided to go promming again. There have always been a few keen queuers who begin around 11 am; but, as in previous years, I found that less than 100 were in front of me when I joined the queue just before 4pm. The box-office and auditorium open, as of old, an hour before performance.

As in previous years, my queue neighbours were widely varied. One of them, who had arrived here four weeks previously from Australia, knew plenty about current opera and was working here as a waiter; one had first attended the Royal Opera House in 1946, when, as a balletomane Wren, she had been given a place in the Royal Box to watch Margot Fonteyn, Robert Helpmann and Beryl Grey in The Sleeping Beauty; and one of them, an American, was catching up with European culture after 20 years in Kenya.

In 1974, as I recall, a Proms place cost Pounds 1. Today one costs Pounds 10. Still, for last Monday's Tosca, the carpet felt as full as it did in 1974 for a Cotrubas-Carreras Traviata. Partly because the Proms now occur in term-time, no doubt, fewer of today's Prommers are students. Partly because of today's economy, no doubt, more of them wear City suits or pearls. Mine was by no means the only FT in the queue.

Recalling the Proms of the 1970s, I feel that they helped to change my life. There must have been others over the years who now feel the same way. On their behalf and mine, to the Midland Bank and the Royal Opera House, a big thankyou.

The current season of Covent Garden Proms ends tonight, with another Tosca

THIS YEAR'S Reith Lectures are given by Professor Edward Said, born in Israel, now Professor at Columbia University. His subject is 'Intellectuals and their role', and if many intelligent people argue that they have no role, this should at least ensure plenty of intelligent attention. The first lecture (Radio 4, Wednesday, repeated Radio 3, Friday) was called Representations of the Intellectual, but it went beyond that; he even used the phrase 'the Intellectual vocation'. His chosen representations were fictional - Bazarov in Turgenev's Fathers and Sons, Stephen Dedalus in Joyce's Portrait of the Artist and Moreau in Flaubert's L'Education sentimentale; pretty different characters, but all determined not to be involved in matters where decisions had been made by others. There must be some good intellectual points to be made in the five lectures to come.

Radio 4's Monday Play was David Edgar's The Shape of the Table, repeated from the World Service. A dissident writer, Pavel Prus, opens with an account of his descent from writing fairy-tales to imprisonment, but he is soon involved in the political discussions of the new order, an unviolent revolution having taken place. The old guard are out, and a newly reactionary party is busy sorting out the best jobs. This kind of state scheming is the very thing Edgar likes; there is something intellectual, indeed, about his concern. I was not totally entranced by the talk, which dealt with imaginary party-lines one was not familiar with; but there were telling exchanges - 'You made your deal', 'We had our conversation'. The political climate becomes more and more bourgeois, and I need hardly say that Prus ends up as President. He was played by Karl Johnson, and the direction was by Hilary Norrish.

Wednesday on Radio 4 is baby night, and unexpectedly horrifying. This week, Baby Farming; last week, midwives; the week before, Rescuing the Inner Child, about the after-effects of child-abuse. Wednesday's piece, presented by Stanley Williamson, was documentary, and the horrors it recalled are unlikely to be equalled today. Between 1866 and 1869, of 298 inquests the Central Middlesex coroner sat on, 174 were of murdered babies - not mainly of poor families but of middle and upper classes too. Awkward children went to 'minders' for a shilling or so a week. A public-spirited doctor, Alfred Wiltshire, made enquiries; one minder was found by the police with five babies a few weeks old and five aged between 14 months and 2 1/2 years; she was subsequently hanged. Not until 1872 was any government action taken.

The Inner Child programme, presented by Jane Grayshon, was about the after-effects of child abuse. Childish reactions are retained in adults and can cause social trouble. The cure advised by counsellors is to treat this 'inner child' from an adult point of view, perhaps even write letters. Some of the experiences recalled were unpleasant, but at least there is official retribution available nowadays.

There are many silhouettes of the star players of old times on Radio 2, and if I do not refer to them here it is because they don't tell me anything new. We had Grace Moore on Tuesday - a song from the New Moon film, recordings from the Met in New York (where she failed her first audition), the Music Box Revue. We heard her singing, but not talking; the truth is we learnt nothing. These 'spotlights' are fun to hear, but they only amount to illustrated editions of Who's Who.

IN RECENT years Jessye Norman has elected to tackle some of opera's most 'extreme' heroines - Bartok's Judith and the unnamed protagonist of Schoenberg's monodrama Erwartung, Isolde and Salome. The majority of these have already been sampled, in some form or another, in London; little that she has done here has been quite as impressive as her concert account of Erwartung at the Barbican Hall on Thursday, in company with Pierre Boulez and the London Symphony Orchestra.

On the face of it there might be thought a certain lack of 'match' between the soprano and at least some of these ladies. Certainly, the Schoenberg monodrama - a miraculously fine-woven, subtly-coloured musical marriage of nightmare, Freudian psychological analysis and prose-poem, in which a woman searches in a wood for a lost lover whose body she suddenly discovers - would seem to require an altogether different kind of artistic profile.

The stream-of-consciousness narration calls for spontaneous utterance, wide emotional range, nimble alternation of moods from quiet reflection to furious torment. The mature Norman style is monumental - the stance and demeanour totemic, the bronze streams of tone grandly poured out, then channelled by minute calculation in the shaping and shading of every word. Mercurial responsiveness finds no place in the delivery.

And yet, because all the singer's considerable intelligence had been concentrated on the task, the experience developed a mesmeric power all its own. The presence on the podium of Boulez was, in the best sense, a counterweight to monumentality: his handling of those intricate Schoenbergian thought-patterns was itself a miracle of balance - of nervous energy sustained, dramatic impulse disciplined, musical imagery lucidly traced.

The old view of Erwartung as one long overwrought Expressionist torrent seemed light-years distant.

concert sponsored by the Sema Group; repeated at the Barbican Hall tonight

ON Wednesday at the Spitalfields Festival, Richard Hickox and the Northern Sinfonia played Shostakovich and Walton, and (despite support from the Walton Trust) Shostakovich won. The Bear, Walton's hearty one-act opera after Chekhov's rather subtler piece, was not ideally placed after Shostakovich's 14th Symphony, which is desperately serious and scathing.

In fact the opera was excellently cast, with Della Jones singing a larger-than-life Popova, the volatile widow with airs, and a gruff, explosive Smirnov - who comes to collect a debt and ends by collecting Popova instead - from Alan Opie. Both of them flung themselves into the comedy with fervour bordering on frenzy. Yet we didn't laugh much. The singers' diction was beyond reproach, but Walton's racketty little orchestra (a small battalion of percussion, raucous muted brass) loomed just behind them, and in the resonant Christ Church acoustic the instruments were impossible to keep decently down.

Miss Jones and Opie soon found themselves belting out most of their music, just to make it heard amid the roar. One wanted more half-lights, slyer character - which they could certainly provide in a more singer-friendly setting, and indeed in a staging: physical confrontation is essential to this comedy, and face-pulling while they sang straight from the score made a thin substitute. Adjusted to a proper theatre, this performance ought to be delightful. It enjoyed the bonus of a very superior manservant, since the bass Stephen Richardson was on hand for the Shostakovich anyway.

There he was greatly impressive, as was Miss Jones (and their Russian, too - gutturally persuasive to an inexpert ear like mine, and used to biting effect). The 'symphony' is a 1969 song-cycle on poems translated from Lorca, Apollinaire and Rilke, and one by Wilhelm Kuchelbecker, all concerned with death, persecution, lofty anger and grim despair. The vocal lines are etched into an extraordinary small-orchestra score, bleakly spare strings frosted with touches of celesta, vibes, xylophone, bells: an unforgettable sub-Arctic sound world.

Hickox conducted it with cool, exact sympathy, and drew admirably sensitive playing from the Northern Sinfonia. No risk here of overwhelming the singers, who were left free to penetrate the songs in depth. Despite the presiding tone of this disillusioned music, the range of bitter expression is wide and varied, and both artists were in formidable command of it. After the insights of their performance, I thought I might at last begin to understand Shostakovich's hitherto opaque 15th Symphony.

ROSES ARE at their peak, lavender has purpled, and the scent of philadelphus is enough to make any gardener lose his or her head. In a June such as this, to give flower lovers any more pleasure could be risky. Even so, it would be a pity to deny yourself Pick of the Bunch, an exhibition of Dutch, Flemish, and French flower paintings from the 17th to early 19th centuries. It is at John Mitchell Son, 160, New Bond Street, London W1 (071-493-7567) and closes July 15.

The 'bunch' is the magnificent collection of flower-paintings, the largest in the world, owned by the Fitzwilliam Museum in Cambridge. Pick of the Bunch is a chance to display some 50 flower paintings and also flower miniatures, many made as lids for snuff-boxes etc.

The Fitzwilliam owes its wealth of flower paintings to a Norfolk gentleman with a passion for flowers. In the 1930s, Major Henry Broughton, later 2nd Lord Fairhaven, created a legendary water-garden beside the Broads. He also began to collect, starting in the 1930s with bird paintings and then switching to flowers. Broughton's gift of 37 paintings transformed the Fitzwilliam's own small but rather fine collection of flower pictures. On his death in 1973, the museum received a further 83 oil paintings, no less than 1500 flower drawings, and a quantity of miniatures.

With such a huge collection, a fair number of the paintings in Pick of the Bunch are being seen in public for the first time in decades. It includes many of the great names in the development of flower painting, beginning with Breughel. 'Flowers in a Clay Vase' by Jan 'Velvet' Breughel is described by Peter Mitchell, who selected the exhibition, as the most important flower painting in Britain. It is a lovely thing, dozens of blooms massed tightly together and yet depicted with such lightness of touch that the bouquet seems to tremble with life.

As ever, Brueghel's is not a naturalistic bouquet; primroses, poppies, and roses never normally nod to one other. However, in the infancy of flower painting, artists were licensed to turn the seasons upside down in order to record prized specimens for their patrons. Another unnaturalness is Breughel's iris, a fabulous bloom of blue-white stippled with black, twice the size of anything else in the arrangement. Did its owner love it more than anything else in his garden? Diamond and pearl jewels lie at the foot of the vase. Perhaps the message of the painting was that flowers like the iris were no less valuable than the goldsmith's creation.

Multiple meanings lie hidden in paintings by such well-known names as Willem van Aelst, Daniel Seghers, Jean Michel Picart, and Jean-Baptiste Monnoyer. In a typically dark and eerie painting by Otto Marseus van Shriek, a bouquet of roses, carnations, and alchemillas has attracted not just a cloud of butterflies but also a lizard and a snake.

Bugs and beetles nibble away at many bouquets, a traditional reference to the gnawing tooth of time but also testimony to 17th-century humanists' delight in the bewildering variety of God's creation. They coexist most beautifully in a masterpiece by Jan de Heem, a Dutchman of the generation after Breughel who settled in Antwerp.

This painting, the largest in the exhibition, is a splendid rediscovery. Years ago, the De Heem used to hang in the public galleries until the day when it was pronounced to be merely 'school of' De Heem. Down the painting went to the reserves, to be rediscovered only when the exhibition was being selected. It has been newly cleaned by the Hamilton Kerr Institute, and found to be in exceptionally good condition.

Anyone who thinks flower paintings are dull should study this De Heem. For one thing, it has an exceptionally energetic quality which comes partly from the eye-catching diagonal tulips and from the twisting flower-heads and ragged, curling leaves. Every passage is a miracle of technical skill. A greenhopper, straddling the stone ledge and a blackberry leaf, contrasts with the velvet butterfly. A poppy-leaf, tinged with pink, has just the right touch of flabbiness and sprinkled with perfect raindrops.

If I were able to take any of these pictures home, it might be Adriaen Coorte's bundle of asparagus, given to the Fitzwilliam by the painter, Sir Frank Brangwyn. Sisterly feelings might tempt me to ask for either painting by two women flower painters much admired in their own time and now Vallayer Coster and Rachel Ruysch. There is a third woman, the almost unknown 19th-century painter, Melanie de Chomolera, on this showing a faithful rehasher of the 18th-century manner.

But the painting I covet above all is by Boilly (1761-1845), whose still lives are exceedingly rare. This painting is all softness and not a little sensuality, too, and yet with a tinge of Romantic gloom. The light is concentrated on a superb group of roses, in bud and full bloom, their full, white petals enfolding a deep pink vortex. A dead sparrow lies on the ledge, its soft grey feathers finding an echo in the funebral shade of the lilac and purple-red poppy.

* * *

Early flower-painters - Cornelis de Heem and Bosschaert the Elder - also hang in the exhibition of Dutch and Flemish Old Masters at Noortman, 40, Old Bond Street (until July 16). It includes still lives by De Heems, father and son, two Hobbema landscapes, and 'A Flirtation' by Wouverman which formerly belonged to Earl Mountbatten.

The two most remarkable paintings are Pieter De Hooch's 'Courtyard of a House in Delft' and Gerard Dou's 'A Painter in his Studio', a fascinating contrast with the painting which was its source, the young Rembrandt's famous painting, exhibited in the recent National Gallery exhibition. A grey parasol which hangs on the studio wall was not used to shade the artist (Rembrandt himself, it has been claimed) from Leiden's summer heat, but to keep off the dust as his pictures dried.

THERE WAS an air of tangible relief, approaching exhilaration, in the London auction rooms of Sotheby's and Christie's this week. The major summer sales of Impressionist, Modern and contemporary art, the backbone of the turnover - and the profit - of both companies, had gone better than anyone dared hope. Barring some unforeseen mishap, the recession is over at the highest echelons of the art market.

For almost three years now the auctioneers have stood at the rostrum, talking to themselves, while a stony-faced audience has watched impassively as good Impressionist painting has followed indifferent modern sculpture back to a disappointed vendor.

But at Christie's on Monday night James Roundell experienced the breakthrough. 'Suddenly there were four raised hands in the room, all bidding for the same lot. They weren't prepared to chase each other up to ridiculous levels but there was definite interest again'. By the end of the evening Christie's had assembled Pounds 17.9m from 48 lots, with the 18 per cent unsold percentage by value its lowest in this sector for three years.

The top lot says it all. A Renoir portrait of a young girl holding flowers, more subdued than many similar Renoir paintings, was estimated to make around Pounds 4.5m. It sold for Pounds 5.7m. In 1987, when the Impressionist market was moving towards its peak, the same work had sold for Dollars 4.8m.

The message was repeated 24 hours later at Sotheby's, which recorded its highest total for a London Impressionist sale in almost three years of Pounds 20.3m with 14 per cent unsold. The improvement could be neatly charted. The first portents were visible in New York last December when a Matisse sold for Dollars 14.5m and a Monet for Dollars 12.1m. They had become tangible by May with Sotheby's amazing itself, and the dealers, by disposing of a Cezanne for Dollars 28.6m, way above forecast. London did not offer such impressive pictures, but it seemed as if the past month had added to confidence, with broader based bidding and more lots finding buyers.

This week's prices still seem modest compared with the midsummer madness of New York in 1990 when, in three days, a Japanese industrialist, Ryoei Saito, paid Dollars 82.5m for a Van Gogh portrait at Christie's and Dollars 78.1m for a Renoir music hall scene at Sotheby's, but they are a significant improvement on the meagre Pounds 6.6m sale total raised by Sotheby's and the Pounds 10.3m by Christie's in December 1990 when the art market suddenly took the full force of the recession and the loss of nerve by buyers.

This week Sotheby's and Christie's were confident that within the next year they will be able to bring out the champagne again. For although it is death, divorce and debt that mainly bring works of art on to the market, somehow these three seem capable of holding off when demand is non-existent and prices have nose-dived. Only rising values trigger the return of the masterpieces. 'Sellers can now feel more confident that if they have good paintings, with reasonable estimates, there is no reason why they should not go' says Melanie Clore, director of Sotheby's Impressionist department, who carefully packaged an auction of pictures fresh on the market and carrying attractively low estimates.

It is the important works of art which bring out the big buyers, the world's richest connoisseur collectors, like Niarchos, Thyssen, Newhouse, Barbara Johnson and Anneberg, whose fortunes have hardly suffered during the recession. When one did become available in May, Van Gogh's 'Wheat field with cypresses', Annenberg stepped in smartly to buy it privately, only to present it to the Metropolitan Museum of art in New York. The enthusiasm of the ultra rich for buying art again somehow permeates down to the very lowest reaches of the market.

Bidding at the week's auctions was an encouraging mix of dealers and private collectors, Europeans and Americans. Even the Japanese were back, but the serious Japanese dealers, not the speculative punters who were largely responsible for pushing the price of indifferent Renoirs, Monets and Picassos to unsustainable heights in 1989 and early 1990. Fortunately the hundreds of Impressionist and modern works of art in Japan stay locked away in the bank vaults ., often acting as collateral to loans. The owners seem content to wait for them to slowly regain their value.

The success of the week has shattered one rapidly growing lobby, which argued that the prices reached in the summer of 1990 would not be repeated for a generation, and that Old Master pictures had regained their hold over the art market from the Impressionists. For not only were the best 20th century works selling: even the follow up, second division sales, where new collectors enter the fray by spending Pounds 100,000 or less on a work by one of the Henri's - Lebasque, Martin and Cross - did quite well. Of course demand is still selective and most works sell nearer the bottom of their estimate than the top, but a market has re-established itself, and late 19th and 20th century art remains the desirable collecting field for the rich.

MONTREAL'S arts scene is well-known for its vitality, innovation and willingness to take risks. The major talking- point of the fifth Festival de Theatre des Ameriques was a cycle of three Shakespeare plays, Coriolanus, Macbeth and The Tempest, translated and adapted by the Quebecois playwright Michel Garneau and directed by Robert Lepage.

The present cycle, which has already been seen in France and which will be seen again in Europe later this year, will appeal to audiences who think visual images are more important than the actual text. Coriolanus is set within a rectangular frame measuring 4 feet by 16 feet. It is like watching a very small cinemascope screen. The frame cuts off the actors' legs; when they stand on tables (which they do quite often) the frame cuts off their heads and they look like ruined figures in a Roman frieze.

Shakespeare's tragedy is played for comedy. The action takes place in bars, restaurants and broadcasting studios. Coriolanus and Aufidius wrestle on the ground in the nude in slow motion; but, with the aid of a slanting mirror, it seems as if their sexual foreplay is taking place in mid-air. The battle scenes are played by puppets. The action is punctuated by the modern alarums of a city caught in a traffic jam.

Jules Philip's Coriolanus is so young he might still be in the sixth form; it is difficult to imagine him either as a triumphant general or as somebody to whom the Roman people would offer a consulship. The most memorable performance is by Anne-Marie Cadieux, who plays Volumnia, that most formidable of Roman matrons, in a high camp manner.

Coriolanus has been translated into modern Quebecois. Macbeth has been put into an archaic and barbaric language, drawn from an abridged dictionary listing words prohibited by the clergy and sprinkled with Norman and Breton dialects. The setting is a wooden passageway on two levels, running the whole width of the stage and made out of rough planks which can be pulled down to form a fence. At one point Macbeth is seen through the slats, running backwards and forwards, giving, with the help of strobe lighting, a magic lantern effect.

The Tempest, translated into classical Quebecois, is set in a rehearsal room with a wall of mirrors, a ballet barre and some gym lockers. In the centre are two green- topped tables round which the actors sit. The production begins with Prospero (Jacques-Henri Gagnon) in jeans, in his role of theatre director, reading his opening scene with Miranda.

Caliban is played by Anne-Marie Cadieux as a manic female punk-rocker with coarse voice, blackened eyes, hobnail boots and wearing a plastic garbage bag. Marie Brassard's Ariel spends most of her time on top of the light-fitting, which she uses as a trapeze. Caliban, Trinculo and Stephano act their drunken scene on top of the lockers.

The Shakespeare cycle played to packed and enthusiastic houses. So did Gertrude Stein's existential oddity, Doctor Faustus Lights The Lights, written in 1938 but not performed until after her death in 1946. Faustus sells his soul to discover electricity. There were three different Faustuses; three Marguerites in identical blue dresses; two Mephistos (one a red-headed clown); a towering transvestite with a sickle; three dwarves in yellow macintoshes and a dog who said 'thank you'. The action, a religious and psychological conflict, took place in Faustus's mind. The music by Hans Peter Kuhn was minimal.

The production was by American director Robert Wilson, who has spent most of his working life in Europe. Wilson (like Lepage) is more interested in form, movement and light than he is in text. He feels most actors are too text-orientated and argues that the best actors are those who do not understand what they are saying. Hence his decision to direct a group of East Berlin drama students in English. The text was used for its sound rather than its meaning and the flat German intonation gave the banality an extra dimension. I felt I was watching a ballet. The performance was cold and mechanical and, at an hour-and-a-half, mercifully short for a director whose productions are liable to last five, 12, 24 hours, even three days.

Pol Pelletier, founder of the Women Experimental Theatre in Montreal, threw herself energetically into a two-and-a-half hour monologue, Joie, which described her career in the theatre in particular and the lot of women in general. This cri de coeur was much enjoyed by an audience able to follow the references to Montreal's political life during the last two decades.

I also saw The Lorca Play, written and directed by Daniel Brooks and Daniel MacIvor, which used extracts from The House of Bernarda Alba and snippets of information about Lorca. The piece was acted by seven actresses, who marched up and down, and one limping male narrator, who stamped his cane. The performance was an unsatisfactory mixture of meticulously rehearsed choral work and messy improvisation.

Coriolanus is coming to Nottingham Playhouse at the end of November

VINDICATION by Frances Sherwood Phoenix House Pounds 14.99, 435 pages

HOTEL PASTIS by Peter Mayle Hamish Hamilton Pounds 15.99, 313 pages

THESE TWO novels share three features: they are both first novels - one written by a seasoned writer, the other by a relative novice; neither is good; and both are not good in a remarkable way.

Braving the hazards inherent in fictionalising real life characters, Frances Sherwood based her novel on the life and times of Mary Wollstonecraft. A strong-headed woman of humble social background, Mary Wollstonecraft developed into a formidable champion of women's rights. She experienced London at the end of the 18th century, witnessed at first hand the destructive convolutions of the French Revolution, had lovers - including the writer William Godwin, whom she eventually married - and friends among the leading literati of her time, and herself left a considerable literary legacy which, for her time, was audaciously provocative.

Her story offers many traps to the fiction-maker. Ms Sherwood manages to fall into most of them. Her recreation of 18th century England and France is freshly vivid. Her sense of place and time is evocative in the right way. Where she fails is in breathing life into her characters, Mary Wollstonecraft in particular, who comes across as rather doughy.

In an author's note Ms Sherwood admits that she had allowed 'many deviations' from the actual historical life of her heroine and her contemporaries. 'I wanted to popularise Mary, to make every woman in America know about her,' she writes. 'The biographers have always been perplexed about the discrepancy between Mary's personal life and what she wrote - emotion and chaos versus emancipated rhetoric. But I could understand this perfectly from my own life.' The notion offers an interesting approach, but this discrepancy is not demonstrated and Mary, in spite of Ms Sherwood's contrived portraiture of unconventionality, remains conventionally dull.

The demerits of Hotel Pastis are the converse. The hero, Simon Shaw, a rich successful advertising man in London is stung by an expensive divorce and exposed to the creeping mid-life ennui that comes with too much money and success.

As the going gets rough Simon decamps for Provence, choosing 'the most relaxed of his three cars for the trip, the Congo-black Porsche convertible'. As luck would have it, Congo-black Porsche breaks down in a village near Gordes, where Simon meets beautiful Nicole, who persuades him to convert a derelict gendarmerie into a luxury hotel. Simon quits his advertising business and does just that.

While the hotel gets under way, along with romance between Simon and Nicole, a group of small-time local crooks are planning a caper. A happy and prosperous end is effected through the agency of an old-fashioned Texas tycoon whose large amiable son, staying at the hotel, is kidnapped by the gang.

The plot and characters are the stuff of an up-market comic book, if there is such a thing. But the writing sustains a glib, cheerful zip even through the many banal situations. The assured style admits no literary pretensions - a redeeming factor. Mr Mayle - of A Year in Provence fame and fortune - carefully sticks to a well-defined aim. To borrow a phrase - only slightly modified - from a Provencal character in the novel: 'il ne pete pas plus haut que son cul'.

THE INFINITE PLAN by Isabel Allende HarperCollins Pounds 14.99, 382 pages

WHEN The House of the Spirits, Isabel Allende's first novel, appeared in 1985 there was the definite sense of a major talent unfurled: a new writer with a knack for haunting imagery and a consummate gift for telling a good story. It seemed to matter little then that the novel owed a good deal to Gabriel Garcia Marquez, that its array of autobiographical fragments was skillfully pasted into a frame of magic realism with the family saga of One Hundred Years of Solitude as its archetype; the recipe was a compelling and effective one, and manages to retain its potency still on re-reading.

Nothing, though, that Allende has written since has come close to generating the power and vision of that first book. Of Love and Shadows, set in an unnamed, but typically repressed South American country, turned out be a mundane romantic thriller, flecked just occasionally with descriptive, lyrical passages recalling the power of its predecessor but never its sharp focus. Eva Luna and still more its codicil The Stories of Eva Luna cleaved closer again to Marquezian models, but both failed to make their sweet-sour mixture of violence and sentiment gel into a credible or even convincingly incredible world.

Now comes The Infinite Plan, and Allende's limitations as a novelist seem all to clear. The South American backdrop has been abandoned altogether; the novelist's own peripatetic life history - which has taken her from Peru where she was born through Chile and Venezuela - has brought her and her fiction to California, where the realities are different and the magic realities different again.

The scheme is another family saga; the ambition is undoubtedly epic. The protagonist is Gregory Reeves, raised in the Hispanic quarter of Los Angeles as the son of a travelling evangelist, who ranges the western states in a dilapidated charabanc retailing his Infinite Plan of deliverance. The Reeves caravanserai attracts the exotic, the eccentric and the arcane, and gives Allende a perfect platform for some colourfully sketched vignettes and satirical observations on modern West Coast life.

Yet the description and characterisation never raise themselves above the level of cliche and stereotype; the plot creaks, the motifs are reinforced with the subtlety of a steamhammer, and a novelistic struture that attempts two narrative streams running in parallel blurs into incoherence. The final message of The Infinite Plan - that life is great in the Great American Dream if you can only stick with it and win your struggle against adversity - is sickeningly pat, and makes one despair that Allende can ever recapture the elegance and beauty of her first work, or transplant it successfully to a new environment.

VICTORIAN POETRY: POETRY, POLITICS AND POETICS by Isobel Armstrong Routledge Pounds 35, 544 pages

MUCH OF Victorian poetry was until recently a desolate no-go area. Then Antonia Byatt's Booker-prize-winning novel Possession jolted many of us into an awareness of the fascinating psychological complexities lurking within that poetry. Isobel Armstrong, Professor of English at Birkbeck College, has put together a collection of essays that amount to a re-interpretation of the poetic output of the whole period. Poems like The Lotos Eaters, Mariana, The Lady of Shallott, Maud, Fra Lippo Lippi, Porphyria, Sohrab and Rustum, Dover Beach, Casabianca ('The boy stood on the burning deck . . .') and many others lying moribund in the collective memory return alarmingly to life under Armstrong's masterly dissections.

The poems are - in Armstrong's eyes - capable of dual readings. This is particularly true of many poems by Tennyson and Browning that dramatise the plight of an individual. You can either read the poem from within the consciousness of the person at its centre or you can step outside his or her mind and consider the totality of the situation. But let the Professor explain:

'. . . the poet often invites the simple reading by presenting a poem as lyric expression as the perceiving subject speaks. Mariana's lament or Fra Lippo Lippi's apologetics are expressions, indeed, composed in an expressive form. But in a feat of recomposition and externalisation the poem turns its expressive utterance around so that it becomes the opposite of itself, not only the subject's utterance but the object of analysis and critique. It is, as it were, reclassified as drama in the act of being literal lyric expression.'

From this Armstrong arrives at her key-concept - the double-poem - as the chief poetic construct of the Victorian period. The two readings of the poem are two poles generating tension, stress, ambiguity. This disturbance inherent in the poem encourages us to penetrate beneath the surface meaning. On the surface The Lotos Eaters is a dreamy poem about drug-taking and retreat from activity; but step back and what do we have? 'Its exploration is nearer to Marx's understanding of the estranged labour which converts all energy expended outside work into subhuman or animal experience than to an account of the text as a simple desire for escape and exploitation of resources'.

Poetry was used by the Victorians as means of disseminating doctrine both by those on the right and the left. Keble used poetry to inculcate Christian piety. The Chartists used poetry to publicise their protests. The occasional 'hatchet-job' we read today on a new book of poems is a mild affair compared with the way the likes of John Wilson or Croker would pitch into a new volume by poets such as Tennyson. Indeed it is hardly an exaggeration to say that poetry in Victorian times had the same urgency that today we devote to considerations of the economy.

Professor Armstrong has reconstructed the main lines of this Victorian debate about poetry as it occurred in reviews and articles. She identifies the groups of theorists and critics from whom the poets drew strength. For Tennyson, it was initially Hallam and the Apostles adumbrating a new kind of post-Romantic conservative-subversive poetry of sensation. For Browning and his discovery of the dramatic monologue she points to a link with Benthamite Utilitarian theory and the notion of the Grotesque as expounded by Ruskin in The Stones of Venice.

Some of these connections are dazzling. The most controversial is likely to be her bracketing of Swinburne and Gerard Manley Hopkins as the two sides of the same poetic coin, the sado-masochism of the former a counterpart of the Jesuitical discipline of the latter. Armstrong's expositions are are not always easy to comprehend, as in her long analysis of Christina Rossetti's Goblin Market, the most haunting poem of the period, which she denies is about anything as simple as menstruation or masturbation.

Armstrong devotes a substantial chapter to the women poets of the period in which, as well as familiar names like Rossetti, Elizabeth Barrett Browning, the Brontes, she resuscitates interest in such forgotten figures as Letitia Landon, Felicia Hemans, Mathilde Blind, Amy Levy. Armstrong is a formidable apologist who can turn versified dross into poetic gold - as she does with Hardy's The Dynasts, in her view the last great Victorian double-poem.

This is one of those works of scholarship and interpretation that, like C S Lewis's The Allegory of Love or William Empson's Seven Types of Ambiguity, from now on students of English literature will need to turn to again and again.

THE NIGHT MANAGER by John le Carre Hodder & Stoughton Pounds 15.99, 443 pages

THE masterpiece of John le Carre, as we can now see, was what his publishers today call The Quest For Karla trilogy - the sequence of three long novels, Tinker, Tailor, Soldier, Spy, The Honourable Schoolboy and Smiley's People - in which the British intelligence chief Smiley confronts and eventually outmanoeuvres his opposite number, his 'shadow', his semblable, his frere, the Soviet spymaster Karla. At the end, at the moment of Smiley's victory, they meet, unspeaking, at the Berlin Wall in a moment of profound truth: 'This thing of darkness I acknowledge mine,' as Prospero puts it in The Tempest.

Le Carre was our finest novelist of the Cold War. His new novel triumphantly breaks free of that genre and discovers a new world, a new subject - and he has not lost his gift for the topical. The Night Manager is about British arms exports to the Third World, Whitehall's complicity in that trade, a giant scam by an English tycoon to swap arms for Latin American drugs with the co-operation of 'a caucus of bent bankers, brokers and middlemen and corrupt intelligence officers on both sides of the Atlantic.'

As so often in Le Carre's world, the protagonist - the hero - is an innocent: a brave and lonely individual in danger of a tragic end, who is inspired by his own decency and the love of a not-particularly-good woman to fight against colleagues and employers, fellow spies and his own political and civil service masters.

Jonathan Pine, the night manager, has retreated from army service in Ireland to the safety of the posh hotel trade. He is rescued by a love affair in Egypt with a woman he loved, betrayed, killed, and through whom he discovers Roper, the businessman who is 'the worst man in the world'.

Roper is a great charmer who takes a robust and historical view of arms dealing: he is happy to compare himself with Britain's 19th-century China traders - 'Opium for tea. Barter. Came home to England, captains of industry. Knighthood, honours, whole shebang. Hell's the difference? Go for it] - that's all that matters. Americans know that. Why don't we? Tight-arsed vicars braying from the pulpit every Sunday, old nellies' tea-parties, seedcake, poor Mrs So-and-So died of the whatnots? Screw it. Worse than bloody prison . . .' (It will be seen that Le Carre's extraordinary gift for mimicry has never been so fully indulged and developed. His dialogue is a never-ending delight.)

The night manager is recruited by a minor branch of British intelligence to penetrate Roper's organisation. His deep cover is meticulously and successfully developed to the point where he is trusted by Roper as front man for his big arms deal with the Columbian drugs cartel. He falls in love with Roper's woman. He is betrayed by his own side, caught up in the Whitehall-Washington power struggle between 'Pure Intelligence' and 'Enforcement'. Le Carre's moral has not changed: 'The enemy's not out there. He's here among us . . . We are honourable people, he thought . . . Honourable people with self-irony and a sense of decency, people with a street spirit, and a good heart. What the hell's gone wrong with us?'

This is wonderful stuff, subtle, exciting, complicated (almost too much so, it is very complicated), vivid in its successive pictures of Switzerland, Canada, the Caribbean, Central America - and of course, SW1. Who else could introduce a sub-section like this?: 'Eight men and Goodhew sat at the long refectory table: a Foreign Office mandarin, a baron from Treasury, the Cabinet Office solicitor, two squat-suited earthlings from the Tory middle benches and three espiocrats of whom Darker was the grandest and poor Harry Palfrey the most derelict . . . ' Note that Palfrey was the narrator of The Russia House. He here comes to a suicide's end.

But there have to be various caveats. The first is that we are given 'Jeds', the usual Le Carre cosmopolitan half-whore, whose qualities (cf. the girl in The Honourable Schoolboy) do not convincingly sustain their burden in the plot. 'She had a jewelled brilliance and a kind of dressed nakedness.' Oh dear. I'm sure she's wonderful as well.

Much more seriously, Le Carre's Whitehall this time is near-impossibly opaque and confusing, which can only be because he does not allow himself to develop and characterise his warring factions. We are given Burr, Goodhew, Rooke and the wicked Darker - but they never begin to achieve the memorable lineaments of Smiley, Guillam, Hayden, Alleline, etc. in the earlier books.

Even on a second reading these espiocrats blur into each other, which is a dangerous failing in view of the fact that the heart of the plot turns out to be double-dealing in Whitehall. We thereby lose, at the end, some of the story's psychological depth and conviction: and that, ever since The Spy Who Came In From The Cold, is why we have been reading Le Carre all these years, and shall continue to look forward to his next.

OXFORD BOOK OF MODERN FAIRY TALES edited by Alison Lurie Oxford Pounds 17.95, 474 pages

Children know something they can't tell; they like Red Riding Hood and the wolf in bed', Djuna Barnes once remarked, and anyone who has told the story to a child will know what she meant. Fairy tales are among the oldest forms of literature, and their survival, told from generation to generation over centuries, bears witness to their extraordinary psychological power. As recent Freudian critics have shown, they confront our deepest unconscious dilemmas - sibling rivalry in Cinderella, sexual fear/desire in Little Red Riding Hood, terror of abandonment in Hansel and Gretel - in symbolic forms which console and help us through life.

The modern fairy tale is another animal altogether. It cannot compete with such primitive, mythic enchantment but, as this enticing new collection shows, it has attractions of its own. Where Cinderella is timeless and universal, the modern tale speaks volumes about its author's personality and the society in which it was written. Where Cinderella is comforting and familiar, the modern tale is complex and disturbing. And where Cinderella is effective told in any language or style, the modern tale has a literary quality which makes it at its best a sophisticated and satisfying work of art.

So rich is the fairy tale form that, since the Victorians first used it as a literary model, each generation has mined it for its own purposes. For Ruskin and Dickens, it was the perfect vehicle for social criticism as well as a chance to gush about children - Dickens said that to marry Red Riding Hood would have been perfect bliss. For Oscar Wilde, who wrote stories about giants loving little boys and romances between male swallows and princely statues, the tale was a masked plea for sexual tolerance.

Today, fairy tales are fodder for post-modernist inversions and feminist twists like Angela Carter's 'The Courtship of Mr Lyon', an updated Beauty and the Beast, or Jeanne Desy's 'The Princess Who Stood on her Own Two Feet', where a tall and clever princess 'enchants' herself to stop walking and talking in order not to overpower the chauvinist wimp of a prince who is courting her.

Alison Lurie's collection has an impressive range, but the book is marred by an introduction so skimpy that it is quite useless in explaining Ms Lurie's choice of works, how the stories relate to each other or to traditional tales, why modern fairy tales matter as literature, or who is intended to read them - surely not children?

GK Chesterton said that fairy stories were especially enjoyed by the young because 'children are innocent and love justice, while most of us are wicked and naturally prefer mercy'. A fascinating element of many modern tales is that they follow fairy tale forms but deny justice at the end, often to peculiarly chilling effect. I would have welcomed background from Lurie on, say, Mrs Clifford's 'The New Mother', a Victorian Hansel and Gretel reeking of repression and menace, where a mother leaves the children who love her to punish them for discovering dark secrets, and sends a witch-like 'new mother' with glass eyes and a wooden tail. And surely Bernard Malamud's sad 1960s 'The Jewbird', about a wise Yiddish crow killed by a frozen-food salesman, echoes Wilde's 'The Happy Prince', with its kindly swallow frozen to death: brilliant commentaries, both, on materialistic society.

Explanatory links from Lurie would have made a more elegant, unified volume, but this book is nonetheless a feast of pleasure and surprise.

THE FORESTWIFE by Theresa Tomlinson Julia MacRae Pounds 8.99, 166 pages

WITH THE exception of the works of Robert Louis Stevenson and Captain Marryat, historical novels for children in the Victorian era did little more than provide an opportunity to preach the virtues of the onward march of the British Empire and its values beneath the thin disguise of spiritedly-told adventure stories. Henty dashed off 70 of these yarns and his spirit lingered on until the 1930s when a new generation of writers - Geoffrey Trease and C. Walter Hodges were among the best of them - brought about a quiet revolution in children's taste by enabling them to imbibe real facts about the past in the palatable way that well-wrought fiction can often make possible.

Theresa Tomlinson is among the strongest of a younger generation of historical novelists and her two most recent books have explored themes that have developed from her own researches into the history of Sheffield (where she lives) and its immediate environs. The Rope Carrier (Julia MacRae Pounds 8.99), a memorable account of the terrible sufferings endured by the ropemakers who lived in the caves of the Peak District during the 19th century, was among the outstanding novels of 1991. This month, in The Forest-wife, she mines a much more ancient seam and one which, though beginning in Sheffield, moves north into the country which she knew as a child (Whitby and the coast of north Yorkshire), and south, into Sherwood Forest.

The Forestwife is set in the time of Richard the Lionheart and, especially, those years in which the common people were suffering the crippling consequences of the taxes imposed to fund the Third Crusade. Mary, daughter to the lord of Holt Manor, is about to be betrothed to an old nobleman at the behest of her imperious and unloving father. The very thought disgusts her - she will be nothing better than a breeding sow for a rich old hog. She escapes in the company of her old wet nurse, Agnes, and the pair of them make a new life for themselves, eking out a miserable existence in the perilous wilderness of Barnsdale, home to the Forestwife, a woman whose powers of healing cause her both be revered by the forest folk and feared as a witch.

Theresa Tomlinson possesses many of the virtues of style necessary to a writer of historical fiction for children - an ability to pick and choose among more or less apposite and authentic details; a manner of factual presentation that is sharp, clear and simple; and an ear for dialogue.

But perhaps the most pleasing and intriguing aspect of this novel is the way in which the author draws in, almost by stealth, - the persons of Robin Hood and his entourage, that outlaw who took his first literary bow in Piers the Ploughman towards the end of the 14th century. Robin Hood, usually set firmly to one side in that category labelled 'traditional stories', has had scant justice done him in recent years as an historical personage. Disney, predictably, set him in that ahistorical never-never-land of Merrie Englande. Ian Serraillier's fine re-workings of some of the traditional ballads in Robin and his Merry Men and Robin in the Greenwood have long been out of print.

What Theresa Tomlinson has done is to return Robin, Little John, Guy of Gisborne and others firmly to the era of Richard the Lionheart and speculates imaginatively, without ever losing sight of the accumulated ballad lore that has come down to us, upon their roles in a society that found itself in perpetual turmoil thanks to the machinations of church and state. Mary, having thrown off the bonds of her father, renames herself Marian, maid of the woods; Robert, her wet nurse's illegitimate son, having fought in support of King Richard against his duplicitous cousin John, becomes her Robin, who promises to return to the Forestwife (Marian assumes the mantle on the death of Agnes) each May Day and dance with her. Green woman meets Green man.

THE MAY Corporate Estate Agents' property index reveals a rise of 4.1 per cent in sales for May compared with May 1992, but a 3.4 per cent fall on April. Contracts exchanged rose marginally from April but instructions to sell were down.

March has been the best month for them in 1993. Does this signal a decline in confidence, as spring promise turned to summer rains with the government and prime minister stuck in the mud?

News of actual sales and of prices asked continues to be mixed, as you might expect in a stabilising market. Chesterfield sold 59 Chester Square, London SW1, with a 57-year lease and a ground rent of Pounds 1,700, for the asking price of Pounds 1.65m before the brochure was circulated.

Most agents report continued overseas interest in London properties. Even a Russian has bought a flat in Berkeley House, Hay Hill, London W1, for close to the guide price of Pounds 775,000 (down from Pounds 1m two years ago) through Lassmans. In the country, Strutt & Parker in Salisbury, Wilts, sold The Moot House in Downton near its Pounds 650,000 guide price.

Savills' country department reports selling 10 major properties in May with a value approaching Pounds 11m, including three sales where terms were agreed and contracts exchanged within 48 hours. Prices, the firm believes, were 10-15 per cent higher than in August 1992, and two fifths of the buyers were from abroad.

On the other hand some asking prices continue downwards. Carscombe, a 17th century house at Stoodleigh near Tiverton in Devon which was a safe house for the Cavaliers during the Civil War, stood unsold for a year at Pounds 425,000. It is now re-priced at Pounds 325,000 for the house with six bedrooms, five bathrooms, a swimming pool and 20 acres, from Jackson-Stops in Exeter (0392-214 222) and Lane Fox in Tiverton (0884-242468).

Similarly Knight Frank & Rutley in Exeter (0392-433 033) offers the Northmoor estate on Exmoor, on sale now for the second time in two years, at a total guide price for the lots of Pounds 560,000, which is 25 per cent down on last time. And Telham Hill House near Battle, in East Sussex, is reduced by Pounds 115,000 to offers over Pounds 300,000 from Strutt & Parker in Lewes (0273-475 411).

The largest recent reduction is a curio of history: the fortress called No Man's Land in the middle of the Solent, built to counter a possible threat from France under Napoleon III with 49 guns and 400 men. It took 20 years to finish. Gladstone was opposed to it being built when he was chancellor because of the cost, which led Queen Victoria to say: 'Better to lose Gladstone than to lose Portsmouth.' Three years ago it was on offer at Pounds 5.75m, after being, rebuilt as a luxurious abode. Last year, it came down to Pounds 2.5m. Now, it is Pounds 950,000. Call Knight Frank & Rutley (071-629-8171) for the ultimate in offshore island getaways, with three helicopter pads. If no buyer appears, it will be sold by informal tender on September 10.

For pricing normal properties the moral is that the guide price must be realistic, not greedy; then, a good place will sell quickly. There is a danger that vendors will wait too long in the hope of getting more. They may find that sentiment has turned down by the time they have nerved themselves to enter the market.

Selling your house without an agent is unusual but Virginia Pryor is doing it with Lady's Cottage at Melton Constable, in north Norfolk. It has five bedrooms, three bathrooms, an annexe/granny flat/holiday cottage and 72 acres of woods. Locals say DH Lawrence used to stay nearby and found the cottage hidden in the woods with a gamekeeper living in it, which partly gave him the idea for Lady Chatterley's Lover. The guide price is Pounds 445,000. Inquiries to 0263-860 980.

HOW DO you view cottages? As places of rural romance for weekenders to shake off the city's smoke and roar? Or as dark, damp and draughty country slums with outside lavatories, pumps for water, and smoky, decrepit cooking ranges?

Both views can be true; yet, even at worst, the dream factor in cottages remains. To many people, there is enormous appeal in going to the local market to buy home-made jam and cakes from the Women's Institute stall, or to the pub for bitter beer and rustic wisdom distilled over centuries. Mix in village cricket matches and hollyhocks in the garden and you see why people pay a premium for such homes.

Take Lilac Cottage in Henham Road, Elsenham, Hertfordshire, described as 'a 16th century cottage overlooking the village cricket field.' Listed grade II, and with two (or three) bedrooms, it is offered by Mullucks Wells for Pounds 155,000.

A recent survey prepared by the PR Department, which represents estate agents in the home counties, reveals that the cottage market is picking up, especially in Surrey and Sussex; indeed, there are more inquiries from possible buyers than cottages for sale. 'Many potential vendors are waiting to see whether prices will rise,' says David Bedford, of estate agent Bedford.

The survey found that while buyers tend towards cottages in good condition or needing a minimum of work, the unregenerate cottage has not vanished altogether. For centuries, these were the homes of the rural poor; and while many have been refurbished, plenty survive as the vernacular architecture of the countryside, using the different local materials.

Two important criteria for buying a cottage are its location (the further from London, generally the cheaper) and what it is made of. Are you willing to renew the thatch regularly, or will you choose one with a tile or slate roof?

If you are looking for thatch and pink paint, Mullucks Wells offers Chaureth Cottage at Cherry Green, near Bishop's Stortford in Hertfordshire, for Pounds 138,500 while Bedford has Fir Cottage at Hengrave, near Bury St Edmunds in Suffolk, for Pounds 159,500.

Also pink and thatched is Roudham Lodge, a gem of a Victorian Gothic cottage with lancet windows, flint chimney stacks and rusticated woodwork supporting the projecting eaves. Listed grade II, with three bedrooms, it belonged to a big house near Norwich and costs around Pounds 79,000 from Savills.

In brick, Bedford is selling the straightforward two-up, two-down Oak Cottage at Rougham, near Bury St Edmunds, for Pounds 89,000 and a 1967-built thatched cottage called Bridge House at Dalham, near Newmarket, for Pounds 120,000. Overlooking the green at Blackmore End, near Braintree in Essex, is Mission Cottage, the old mission hall; Pounds 145,000 from Mullucks Wells.

To buy in southern counties costs more. In Hampshire, Lane Fox in Winchester is selling Rose Cottage at Cheriton, near Alresford, for Pounds 245,000 while its Basingstoke office has Blaegrove Cottage at nearby Up Nately for Pounds 300,000. Both are timbered, thatched and listed.

In Surrey, Browns in Cranleigh offers the brick, stone and hung-tile three-bedroom Malthouse Cottage at Hambledon, near Godalming, for Pounds 250,000, and its Guildford office has the timbered, 16th century, two-bedroom Millmeadow Cottage at Bramley, near Guildford, for Pounds 225,000.

For that price in Dorset, you can buy the four-bedroomed stone-and-thatch Chapel Cottage (which incorporates the old village chapel as a second reception room), in Melbury Osmond, near Sherborne. Humberts offers it on a leasehold as part of an estate.

Strutt & Parker in Salisbury is selling the white-painted Rookery Cottage in nearby Orcheston for Pounds 98,000. In the Lambourn valley, near Newbury in Berkshire, Mallard Cottage at Easton has three bedrooms, a stable (or office) and tack room for Pounds 155,000 (from Strutt & Parker). It is well placed for the M4, which also is one way to reach the Cotswolds from London; the M40 is the other.

In those cottage-strewn hills, Hill Cottage at Great Rissington, in the Windrush valley, is on offer at Pounds 135,000 from Carter Jonas - a good weekend nest but perhaps too tight for permanent occupation.

A larger cottage is the School House on the village green at Whichford, near Shipston-on-Stour; for Pounds 170,000 from Hurley Lloyd Thorpe.

For a single-bedroom weekend getaway, the same firm has Pixie Cottage at Naunton, near Stow-on-the-Wold, for Pounds 67,500; and, with Knight Frank & Rutley, HLT offers Paynes Cottage at Broadwell, between Stow and Moreton-in-Marsh, for Pounds 65,000. Meanwhile, in Tingewick, near Buckingham, KFR is selling the three-bedroomed Wood Lane Cottage for around Pounds 150,000.

The south-west offers good value. Stags in South Molton, Devon, offers Hollow Tree near Chulmleigh, a white-painted thatched cottage that used to be a farmhouse. The asking price of Pounds 115,000 also includes a listed barn, a stable with three loose boxes, and a paddock.

For Pounds 109,000 (reduced from Pounds 150,000), Millerson has the Old Cottage at Lewdown, near Okehampton, which has been converted from a row of quarry workers' cottages. The price includes fishing on the river Lew.

As a finale, two intriguing properties. One is the 1848 Enoch's Tower, a folly at Stow-on-the-Wold with an extension giving three bedrooms; from Hurley Lloyd Thorpe for Pounds 149,950.

The other is Magazine Cottage at Sedgeford, north Norfolk, from agents Bedford. The cottage was a royalist powder magazine in the civil war and was converted into a home in 1860, when it might also have been a prison. What a history for Pounds 119,500.

Further information: Bedford, Bury St Edmunds (0284-769999); Browns, Cranleigh (0483-267 070) and Guildford (0483-31166); Carter Jonas, Oxford (0865-511444); Humberts, Sherborne (0935-816 909); Hurley Lloyd Thorpe, Stow-on-the- Wold (0451-830 731).

Knight Frank & Rutley, Oxford (0865-790 077); Lane Fox, Basingstoke (0256-810093) and Winchester (0962-869999); Millerson, Tavistock (0822-617243); Mullucks Wells, Bishops Stortford (0279-755400); The PR Department (071-738-9889).

Savills, Norwich (0603-612211); Stags, South Molton (0769-572263); Strutt & Parker, Harrogate (0423-561274), Newbury (0635-521707) and Salisbury (0722-328741).

MYSTERIOUSLY, the pedal of my bike snapped right outside Jean-Michel Veilion's cottage.

He is a neighbour in Pluzunet, a tiny, lively village on Brittany's Cote d'Armor and one hour's drive south-east of Roscoff. He is also one of the finest flute players in the whole of this Celtic corner of France.

As we sipped powerful calvados made from local apples, Jean-Michel mentioned a musical happening. He called it a boeuf, a free feast of Celtic music offered casually by local musicians who sit and play right through the night in the bar.

But which bar and when? It was confirmed later by Olivier, the boulanger, whom I met as I pushed my disabled bike through the village square. The boeuf would be in Pluzunet itself, that very Saturday night. Oliver did not know which bar but there are only two and the respective landladies agree not to open at the same time.

I ended up, some time after 10pm, in L'Eclipse, chez Francoise. You could stumble on a boeuf in any number of bars on the Cote d'Armor, indeed throughout the far western regions of Brittany. Ever since the British Celts arrived in the 5th century, the French influence has been clawing and creeping westward.

But here, at a safe distance from Paris, the maestros perform a friendly Celtic combination, stopping only occasionally to down a demi. Lively fiddle, violin, biniou (a Breton bagpipe), clarinet and Irish drum blend with sweet, soothing melodies of flute and acoustic guitar.

Often, Irish singers accompany Bretons and together they bring emotive rural tales of times past to life. Oddly, L'Eclipse was quiet when I arrived. I was not in the wrong place: Francoise told me that the musicians had been due an hour-and-a-half earlier.

None of the regulars appeared bothered. A couple of ruddy-faced farmers were happily knocking back glasses of red and the man who is always there was there. He wore his normal glazed expression unbroken by curling smoke from a yellow Gitane wedged between his lips.

No boeuf? I asked. 'Ah, peut - etre,' they said. I decided to linger. Conversation turned to Pluzunet's last musical event, a super fest-noz in the Salles des Fetes where 600 people had danced the night away a week earlier.

A fest-noz - night festival - is a mesmerising experience. More than entertainment, it is in the soul of village life in western and central Brittany. Local papers and posters tell of at least one fest-noz in their area every week at any time of the year. People dance all night in huge circles, linked only by their hands, arms or little fingers, stepping intricate movements in perfect rhythm to rousing music.

Breton professors think that the plinn, a simple round dance, was probably a pagan sun ritual. The incredible foot movements developed from the way in which neighbours helped flatten wheat and stamp smooth the earth floors of primitive stone houses.

Now, as then, singers, of all ages, sometimes children, even farmers in their 80s, chant unaccompanied in Breton, an ancient language, tales of love, witchcraft and of sons gone to sea.

Young musicians add spice by mixing funky electric guitar and bass with traditional Celtic instruments. Flushed dancers can buy cider, coreff (the local brew), wine and crepes until the early hours.

In the summer, the fest-noz moves outside to the splendid grounds of ancient chateaux, chapel courtyards and village squares. In the middle of August last year I drove 15 minutes north from Pluzunet to the rugged coast at Tregastel, to a sailing spectacle where Breton jazz and rock groups played on the quay side.

It is an annual event. People camp on the beach. Most let their hair down and dance to the music or consume vast amounts of inexpensive Muscadet and moules marinieres. Enthusiastic sailors compete in a test of endurance.

The biggest Celtic music event in Brittany, at Lorient, in Finistere, on the south-west coast, is worth visiting. Thousands descend on the city between August 6-15 to indulge in an orgy of music and a feast of charcuterie, saucisson, soupe de poisson, galettes, crepes and moules.

I had been right to linger with a demi in L'Elipse. At midnight, the bar was beginning to fill up and I had spotted Iffic Troadic, a local musician, at the bar. Suddenly he began to chant in Breton. The bar fell silent as he recounted a sobering tale of a son from the neighbouring village of Cavan who returned to his dying mother after years at sea.

Then a flautist appeared, a guitarist and a drummer. The boeuf had begun.

A summer school of traditional Breton and Irish dancing at Mantallot, 15km from the northern coast of Brittany, will arrange accommodation and food as well as dancing lessons, walks, and story-telling evenings. Details: write to Kanfarted ar Vilin Gozh, Mairie, Mantallot, France 22450. Tel: (010) 33 96 35 89 84.

IT SOUNDS an unprepossessing address for a shrine, 706 Union Avenue. But Sun Studio, a modest two-storey brownstone building in downtown Memphis, Tennessee, has a better claim than anywhere to be the place where rock 'n' roll began. The Elvis legend started there in 1953 when the 18-year-old truck-driver with sideburns made a demo record in Sam Phillips's tiny Sun Studio.

Sun Studio is now back in the recording business after a neglected period as a garage and a barber shop. It is a guaranteed crowd-puller, and I paid Dollars 4 for the tour. The plastic lights and battered acoustic tiles are the same as 40 years ago. The control booth has been modernised to accommodate the likes of U2 and Ringo Starr, but the intimate atmosphere that produced the breathless, shivering sounds of early Elvis remains intact.

Period instruments lie on the studio floor, and I clutched the same upright microphone that Presley used. The humble Sun Studio cafe next door provides the best hamburgers in Memphis, a remarkable Dixie fried banana pie, and a Wurlitzer that only plays Sun singles.

Memphis and music are intertwined: the historic Beale Street area has been restored, with plenty of restaurants and music venues, but the raffish reputation of the 1920s, when jug bands and gambling joints were everywhere, has almost disappeared. BB King's blues club had some fine raw soul music the night I went. It also had 100 conventioneering Tennessee realtors.

Memphis is rightly proud of its musical heritage, but it is also the home of America's first Civil Rights Museum. The Lorraine Motel, the site of Martin Luther King's assassination in 1968, has been converted into a powerful museum of interpretive exhibits that bring to life the story of the civil rights movement from the 1950s to the present. Martin Luther King's room has been preserved exactly as it was when he was shot on an upper balcony.

It is jarring to cross town to Elvis Presley Boulevard on the same day and see Graceland, Presley's home from 1957 until his death. Around 700,000 people tour this 1930s southern-style mansion each year. Only the White House has more visitors. For Dollars 7.95 you get a strictly guided tour. The iron gates are decorated with musical notes and the graffiti of thousands of fans.

The guides are a mine of information as they convey you around the two lower levels of the house (Elvis's aunt still lives upstairs). 'This grand piano is covered in gold leaf - a present from Priscilla,' says Sharonda as we gaze across the roped-off living room. The white leather sofas are long enough to accommodate a football team and the Jungle Room is decorated like an Hawaiian cocktail. The Trophy Room catalogues Elvis's career: scores of stage costumes, 300 gold and platinum records, school reports, letters from presidents.

Outside, the guitar-shaped swimming pool and a private shooting gallery indicate how Elvis was imprisoned within his own fantasy. An English devotee next to me knelt down to pick up some garden leaves and murmured: 'What a souvenir - genuine Graceland leaves.' The tour ends in the Meditation Garden where Elvis is buried between his parents. The eternal flame on his bronze gravestone is surrounded by guitar-shaped wreaths and tributes freshly placed by fans: 'Elvis, the most beautiful star in the sky. Love from Kiki and Roberta.'

It is a three hour-drive along Interstate 40 from West Tennessee to Nashville, a sprawling, amiable city dominated by music. Every waitress seems to be an aspiring Patsy, Tammy or Dolly. Songwriters advertise their wares on telegraph poles: 'Doug Rehm has NEW SONGS for consideration'. Businessmen who have nothing to do with music are knowledgeable about the new country stars like Alan Jackson and Reba McIntyre.

Over 200 recording studios and music publishers are scattered around Nashville, but the heartland is along Music Row on 16th Avenue where the Country Music Hall of Fame has exhibits and artefacts. It traces the development of different strands of country music with films and videos, original instruments and manuscripts.

Nearby is RCA's legendary Studio B where Elvis recorded 250 songs over 20 years. We gazed at the battered recording console which mixed his songs, as well as those of Jim Reeves, Roy Orbison, the Everlys and Dolly Parton.

Back on the highway we headed south-east to pay tribute to two other Tennessee landmarks - Jack Daniel's distillery and Chattanooga. Mister Jack put a small village called Lynchburg on the map in the 1860s when he began distilling his unique 'sour mash' with the help of a spring water stream and charcoal filtering. Paradoxically, Lynchburg is a 'dry area': our guide warned us at the start of our walk round the distillery that it would be a 'sniffing, not a drinking tour.'

We smelt the vats, we saw the iron-free spring water and the whisky seeping drop by drop through the maplewood charcoal. We even saw hillside warehouses packed with 47m gallons of Jack Daniel's. But there was not a drop to drink until we crossed the county line, seven miles away.

Further east, Chattanooga sprawls along the Moccasin Bend of the Tennessee River at the foot of Lookout Mountain. The Chattanooga Choo-Choo, Track 29 and the terminal station are all now part of a Holiday Inn complex: restored railway sleeping cars have become restaurants.

Ten miles south of the city, America's oldest national military park at Chickamauga commemorates the bloodiest battle of the Civil War in 1863, when Union and Confederate armies fought to gain control of the key rail centre of Chattanooga with the loss of 35,000 lives. Even today bullets are sometimes found in the dense woodland and undergrowth.

Finally, I needed no urging to travel on to East Tennessee where the Great Smoky Mountains straddle the border with North Carolina for 60 miles. The bluish mist which clings to the mountainsides and gave the peaks their name is turning increasingly grey because of pollution, but the Smokies have earned their title of the 'crown jewels of the Appalachians' because of the exceptional variety of trees, flowers and wildlife in this superb national park.

If you find a traffic hold-up on a mountain road here, it is almost certain to be the result of a 'bear jam': 500 black bears live in the park and tourists leap out of their cars to snap them whenever they appear among the greenery.

Richard Gilbert travelled with American Airlines Holidays, which offers various flexible fly-drive packages to Nashville on scheduled flights from Heathrow, Gatwick, Stanstead, Manchester and Glasgow via Chicago or Dallas. Information: tel: 081-572-7878.

THE temple-bells are callin', an' it's there that I would be - By the old Moulmein Pagoda, looking lazy at the sea. - Rudyard Kipling

SADLY, the shrugged shoulders of Burmese officialdom told me that a modern-day Kipling would have to stay put in Rangoon.

Moulmein is the largest city of southern Burma, and during the colonial days its port teemed with vessels laden with teak and rubber heading for the four corners of the empire.

Foreigners have long been kept away from the area, as the government has been determined to segregate them from the disgruntled minority Mon and Karen inhabitants. However, the combination of a government campaign to procure tourist dollars and a lot of persistence eventually won me a ticket for the Moulmein Express.

Trains are the most sensible form of transport in Burma, given the poor state of the roads and the track record of its airline. I was disappointed to find that Rangoon's grand post-colonial station, with its combination of Victorian awnings and Burmese towers, was actually orderly; a barbed wire fence separated hangers-on from the comparatively modern Korean train that awaited.

The train departed on time, and there was an immediate change in atmosphere. A parade of turbanned caterers wearing the ubiquitous flip-flops and Burmese longyi (an extended teatowel with a myriad of patterns, which is wrapped around the waist), marched through the carriage offering anything from what looked like barbecued sparrows to a palatable chicken curry.

'Burmese people are always eating. Their problem is not that they are hungry, it is that they have little money and no freedom,' a man confided in Rangoon. It became immediately evident that starvation was not going to be a problem.

Nor was isolation. Throughout Burma one reads government slogans on billboards proclaiming: 'Love your Motherland, Respect the Law', or: 'Only with Discipline can there be Progress', but this seems to have had little effect on the open and friendly temperament of the people.

The train wound its way around the delta of the Sittang River, and then southwards. Village stations had a festive air, in spite of the wire fencing. Baskets of chrysanthemums, or earthenware pots of water, were balanced on heads and presented through the train window, as the platforms became market places on our arrival.

The girls all had patterns marked on their faces with a mud-like paste, which I assumed to have some religious significance. I was informed, however, that it is the local form of make-up, made from a mix of bark and water. 'Very beautiful. Only lazy women don't wear it', a trishaw driver told me later.

The journey was punctuated by the inevitable one-hour delay for locomotive repair. After 10 hours of paddy fields, pagodas and searing heat, the express train pulled through a breaker's yard for old British steam engines, and drew to a halt at Martaban. Across the Salween river, Moulmein lay shimmering, dominated by its old pagoda on the hill above the town.

Within minutes of arrival, I was accosted by an excited immigration officer in a cowboy hat, who took me to the top of a two-tier British ferry and insisted that I fill in all manner of forms, which occupied the 20-minute crossing to the town.

He was most concerned that I should not leave the city centre, since it was surrounded by 'black zones', where he said I might be shot at. After making numerous promises, and being introduced to his boss, I was then escorted to the Number 8 Guest House.

The cowboy proudly pointed out that I would be sharing this with a famous Rangoon pop band called Aurora, but the cell-like rooms and mildewed shower stalls indicated that in Burma, pop stardom is not as it is in the West.

I never encountered the band, but as the town's lone tourist I had my own difficulties seeking anonymity. A stroll to one of the outlying villages to see a pagoda resulted in my being taken on an escorted tour by the village headman, with 100 waving people parading behind.

The focus of the city, which has a population or around 200,000, is its old Kyaikthanlan pagoda, which lies behind the town on a ridge of hills running parallel to the river.

The soldier in Kipling's poem Mandalay looked down from here upon 'elephints a-pilin teak'. As a sign of the times, the biggest landmark now is the town's fortress-like prison. A Burmese whispered that it holds more than 5,000 people, many of them political prisoners.

The elephants had gone, but little else can have changed. I looked over a line of hazy jungle-covered hills all topped with white pagodas, acres of lush palm trees, and a river crowded with small wooden sailing junks and old steamers. The pagoda was full of young monks playing hide-and-seek in their deep red robes, and schoolgirls chattering. There was not much meditation.

One of the temples around the base of the bell-shaped golden pagoda even contained a small merry-go-round, with flashing lights and statues of Buddhas holding out bowls. The aim was to throw notes into the bowls. The winners earn merit, and one step further in the direction of Nirvana. I missed.

The high ground above Moulmein definitely belongs to Buddha, with pagodas marking every hill top. But surprisingly, the town itself appears to have become the territory of Islam.

The Indians, who were brought over from the British Raj to work the teak plantations in the late 19th century, have built a massive twin-towered mosque in the centre, and their presence was noticeable throughout.

The houses along the high street were wooden-fronted, with bright colours contrasting with black wrought-iron balconies, and the streets were crowded with bullock carts and ancient buses. There were only two obvious concessions to a post-colonial era: a gun-boat on the Salween River and a comparatively modern cinema, showing the film Coolie Killer.

The town's major focus is the covered market, stacked with cheap Chinese-made goods. The demand for western goods became painfully apparent when someone started negotiating a price for the shirt I was wearing.

I set off for Kyaikto, to see the famous golden pagoda. The Kyaiktiyo pagoda is only 5ft high, but it is built on a giant gold-leaf-coated boulder which looks as though it should roll off the cliff on which it is perched.

The reason it does not, legend has it, is because it is held up by a hair of the Buddha. For this reason, the four-hour hike up a steep incline is the Burmese equivalent of the Canterbury pilgrimage.

An 83-year-old hiker assured me that I would gain significant merit from the ascent. What he could not explain was why all the stores along the path sold bamboo rocket launchers and guns, with the inscription 'Rambo', as toys for the children. My memories of Burma are of smiling faces, golden pagodas - and guns.

or the mysterious lack of it - and Steffi Graf's security problems seemed to dominate the headlines during a busy and wonderfully sunny first week at Wimbledon where the British men at last distinguished themselves.

Inspired perhaps by Jeremy Bates' progress to the fourth round last year, Andrew Foster has reached the same stage this time. This afternoon Chris Wilkinson opens the Centre Court programme in a third round match against the two-time former champion and No 2 seed, Stefan Edberg. In mid-week, Mark Petchey and Chris Bailey also covered themselves in glory while failing heroically against two of the higher ranked men.

Foster, a lanky 21-year-old who has benefitted from the new Lawn Tennis Association coaching structure, first beat Thomas Enqvist of Sweden, the 1991 Wimbledon junior champion, in five sets. That was an impressive performance for a man ranked 329 in the world who had recently changed his double-handed backhand for a single-handed stroke. Then Foster scored a straight sets win over Mexico's Luis Herrera who last year had ended the distinguished career of Jimmy Connors on his way to the third round.

'That's probably as well as I've ever played. It's certainly the best I've ever concentrated' said Foster afterwards.

Yesterday Foster was lucky when Andrei Olhovskiy, the Russian, who had surprised top seeded Jim Courier last year, retired complaining of dizziness and sickness with Foster leading 6-3 6-5. Next on Foster's menu is top seed and world No 1, Pete Sampras. That should be a tasty dish for one with nothing to lose - but do not expect miracles.

Southampton-born Wilkinson made the most of a fortunate draw and an affinity with grass to beat first Argentina's Daniel Orsanic, who was bred on clay, and then the qualifier from Canada, Sebastien Lareau. Ranked 187 in the world, 42 places below Wilkinson. Lareau lists Robert Ludlum as one of his favourite authors. So uncomfortable did he look while losing in straight sets on an alien surface that he would doubtless have preferred to be on the Road to Gandolfo for an Osterman Weekend]

Wilkinson continued his winning ways in doubles. With Paul Hand he beat the American Jensen brothers, Luke and Murphy, who two weeks ago had become the French Open doubles champions. Then, with Clare Wood, he beat Byron Talbot and Andrea Tamesvari in the first round of the mixed.

Wilkinson is undaunted by the prospect of facing Edberg this afternoon. 'I'm playing well enough to beat anyone' he said confidently. Eyebrows were raised when he added 'I'm only thinking about winning the tournament.'

Petchey and Bailey can count themselves unlucky not to have joined Foster and Wilkinson in the third round. Both competed with courage to create winning chances that slipped through their fingers. Petchey, who lives in Loughton, was cheered by an army of supporters from Essex on Court 13 on Thursday as he raised hopes of a first big upset. With some aggressive serve-and-volley play, Petchey built a two sets to one lead against Jakob Hlasek, who not so long ago had been ranked No 7 in the world. In spite of holding a match point at 6-5 in the final set the 223 ranked Petchey eventually went down 7-6 4-6 6-7 6-2 10-8.

The real drama came late in the day on the Centre Court. Bailey, a 6 ft 5 in giant, faced the No 5 seed Ivanisevic who had come within two points of winning last year's Wimbledon final against Agassi. On the face of it the 25-year-old Briton had little chance against the fastest server in tennis who last year delivered 206 aces during his seven matches on the Wimbledon lawns.

Only four years ago Bailey's career had been threatened when he had snapped the anterior cruciate ligament in one of his knees. It cost him two years. Yet after two operations and months of physical rehabilitation here he was playing on the Centre Court for the first time. Such was Bailey's athletic commitment and skill in the forecourt - particularly on the first volley - that the Norfolk man had Ivanisevic in despair. To the delight of the shamelessly supportive Centre Court crowd Bailey took a two sets to one lead and was ahead 2-0 and 30-0 in the fourth. In allowing Ivanisevic to escape with that set Bailey showed his relative lack of experience.

The final set boiled to a thrilling climax as Bailey, refusing to be intimidated by some fierce left-handed serves and flashing passes down the lines, forced his way to match point on the Ivanisevic serve at 6-5. Ivanisevic unleashed a huge second serve that struck the net and bounced in. A let. On the replay Ivanisevic hit an even faster one down the middle line - his 32nd ace. It was the act of a desperate man and, for Bailey, a cruel blow. Ivanisevic went on to break Bailey and then served out the match with supreme confidence, ending it with his 34th ace. The 5-7 7-6 6-7 6-4 9-7 victory had taken 3 hours and 35 minutes and the Centre Court clock stood at 8.40pm. As the two men left in the gathering darkness they were given a standing ovation.

British tennis should thank Billy Knight. Three years ago, this former British No 1, always a gritty fighter, was persuaded by LTA training chief, Richard Lewis, to work with the younger men alongside his old doubles partner, Tony Pickard, who had become the Davis Cup captain.

Knight's unquenchable spirit is beginning to filter through. Britain's present players are starting to believe they can be as good as the rest of the world. For Bailey, Foster, Wilkinson and Petchey that is a welcome discovery. Now the hard work begins in translating this advance into results on the ATP Tour. I hope these four, and the younger men behind them like James Baily, Tim Henman and Jamie Delgardo, are ready to accept the challenge.

ONE OF the problems of predicting form in the Whitbread race is that nothing else replicates the gruelling conditions and length of a 32,000-mile contest around the world. Fast off the Needles may mean nothing off Cape Horn.

Nevertheless, a number of the Whitbread entries were keen to shape up against one another in the recent UAP Round Europe race. Another clutch leaves the US on Saturday in the New York-Southampton race. This event will match the British youth/disabled crew of Dolphin against the wily grand master, Dennis Conner, at the helm of his money-no-object entry Winston.

Also in that fleet will be the US Women's Challenge led by Nance Frank. She actually turned back on the start-line of the 1989-90 Whitbread because of lack of funds. This time, following the example of Maiden four years ago, sponsors have been found for a women's crew. No one now doubts the ability of the distaff side, fore or aft of the mast.

A topic of impassioned debate is whether the new Whitbread 60 class of water-ballasted mono-hulls will prove faster than the 30 per cent larger IOR maxis they are to race against. Although the classes are separate, skippers who have chosen the newer boats are itching to show they can beat the 'dinosaurs' around the world.

Three maxis entered the Round Europe and three W60s. Although the data is incomplete, both designers and sailors were agreed that the bigger yachts should be quicker upwind and in the lighter airs. When the breeze goes aft and freshens up a little, one maxi skipper, Lawrie Smith of Fortuna, believes the W60s could be up to 100 miles a day (or 30 per cent) faster.

The third leg of the Round Europe from Cherbourg to Rotterdam looked set to be a perfect test of maxis against W60s. A southerly breeze was solid from the south-south-west, giving a high-speed reach up-Channel to the Low Countries.

Grant Dalton, skipper of the maxi New Zealand Endeavour, said before the start: 'If the W60s are ever going to prove they can be faster than the maxis, today is the day.' Dalton, an experienced Kiwi who skippered Fisher & Paykel in the race four years ago, is said to have spent Dollars 50,000 (Pounds 33,333) with designer Bruce Farr simply for a detailed study on which type of yacht would prove quicker around the global track.

Aboard the W60s off Cherbourg that sunny morning, there was a similar mood of anticipation. Intrum Justitia crew member Gunnar Krantz said: 'For the first time ever, we will really be able to see the potential speeds of the W60s, which I'm sure will give the maxi class a run for its money.'

Heading east from the Cherbourg peninsula, a Spanish W60, Galicia 93 Pescanova, took an early lead but was overtaken during the first night by Intrum Justitia. However, as the wind died away on the 250-mile leg, the maxi yachts, with their vastly bigger sail plan, were able to take the lead.

The first three yachts into Rotterdam were the maxi-ketches NZ Endeavour, Merit Cup and La Poste, with only 18 minutes separating first and third. Intrum Justitia was the leading W60, just 66 minutes behind the Kiwis.

Dalton went on to win the Round Europe overall. 'It has been like a mini-Whitbread,' he said. 'The racing between the maxis has been so close. We are so similar that I think this Whitbread will see the closest racing there has ever been, in both classes.'

Among the W60s, there was quiet confidence. Galicia, winner of the smaller division of the Round Europe, was launched only two weeks before the start and its crew had never sailed together before the delivery trip from Vigo to La Rochelle. The yacht was far from optimised but had delivered excellent speed 'right out of the box.' The same was true for Intrum Justitia although the Italian W60, Brooksfield, was off the pace and is to be modified.

In the southern hemisphere, meanwhile, Chris Dickson - the young skipper who so nearly won the America's Cup for New Zealand six years ago - has finalised the strategy for his first Whitbread. Dickson has been running a two-boat testing programme for the past three months.

After thousands of miles of racing between his boats, Dickson has chosen the Farr design from his duo. Farr, an expatriate Kiwi who lives on the US east coast, has had more victories in the 20-year history of the Whitbread than any other designer. It will be christened Tokio in deference to the consortium of Japanese businesses that have financed Dickson.

The second boat, developed by West Australian naval architect John Swarbrick, was no dog; indeed, it was favoured by some Dickson crewmen and a number of serious buyers have been looking at it. 'It was a very tough decision,' said Dickson, from Auckland. 'Both boats had been optimised and are close to their full potential.

'I would have been happy to do the race in either one of them. The decision was taken with an open mind, purely on the basis of scientific performance tests.'

Perhaps. Top sailors are instinctively a conservative bunch and have a history of shunning radical boats in favour of one that looks like last year's winner. The British team led by Harold Cudmore did just that in the 1986-87 America's Cup, preferring the classic (but slow) White Crusader to David Hollom's developmental 12-metre.

Swarbrick has been the bridesmaid before. In 1987, the Kookaburra syndicate, which defended the cup for Australia against Conner, rejected Swarbrick's boat in favour of a more cautious approach from skipper Iain Murray. Stars & Stripes won 'four-zip' (as Conner would say) and the Auld Mug went to San Diego.

I SHARED a taxi from the station to Lord's with three people I had seen at a county match but did not know. They wanted to cut their losses on fares, if not results. They knew England were going to lose. We all knew that, before the match started. What kept us deep in discussion was the nature of the loss and the changes it might prompt. We planned a new future for English cricket.

One of the few virtues of watching Test cricket in England now is that it makes you look forward, not back. For the selectors to go back in times of trouble to ageing players such as Mike Gatting and Neil Foster is a stop-gap move with no long-term point. It is not part of a clear policy. We agreed on that, inspiring our driver to declare: 'We need a really crushing defeat, a total, wipe-the-floor, smashed-to-bits, down-and-out defeat.' He warmed to his topic. 'Then we can get young blood in the team. That's our only hope.'

All the prescriptions offered were our 'only hope.' Youth, Botham, a new system of cricket organisation, no more Essex, no more foreigners, a better captain - each of these was put forward. The media sees a new spirit as the key to success, but that begs the question. Of course confidence and aggression would help England win, as they have helped Australia so far, but England are unlikely to acquire these qualitites without a win.

I think perhaps a county win over the Australians might help, stripping the emperor of some of the clothes with which English ineptitude has adorned him. On England's part, something should be seen to be done to create a climate of initiative, never one of the cricketing establishment's strong points.

Chris Lewis came out of the winter tour to India with more credit than most, but looks now to have been allowed simply to stay in the team rather than being selected to fight Australia. Nor has Robin Smith done much recently to keep his place. A sort of mental ailment seems to infect all who join the Test management squad, numbing their perception and sense of purpose.

It has infected the once-cavalier chairman of selectors, Ted Dexter, and the once-wily team manager Keith Fletcher, who is in decline along with his team. Take Lewis again. He is a superb fielder but dropped a straight catch off David Boon (then 77) with the air of someone who felt it was hardly worth going for broke because it would not change the result, likewise his suicidal batting just before lunch in England's second innings.

The trouncing at Lord's has worsened this feeling of being pre-destined to lose, and the taxi driver might be right that the only hope is a massive shake-up. It should start with the opening bowlers and batsmen. They do more than set the scene; they grasp the game as soon as it begins.

England were already defeated when they walked out to bat after Australia declared at 632 for four. That is why Mike Atherton's 80 and 99 were so impressive - they were solitary, heroic, and against all odds. Indeed, in the quiet glades of unofficial gambling at Lord's, someone told me that, after the declaration, he had offered odds of 10,000/1 against England winning - but there were no takers. An English victory was beyond a bet; it was a fantasy. Once they had failed to break through Australia's opening partnership, they had lost the game.

Leaving aside the serried ranks of England's first-change bowling talent, a penetrating opening pair is crucial. But where to find them? Devon Malcolm is sometimes wayward but does at least bowl fast; if nothing else, that should have novelty value. So might Kent's Mark Ilott who, while only fast-medium, is a left-armer. Or Surrey's Martin Bicknell, who can swing the ball late. Speed and swing have been missing noticeably from England's bowling lately.

Where opening batsmen are concerned, the irony is that there is a positive traffic jam of them on the county circuit. As a pair, skipper Graham Gooch and Atherton have lost the rhythm with which once they opened the English innings; and, if Gooch retires soon or stands down as opener, the selectors may be inclined towards replacing him with Alec Stewart. Yet, this would not be a strong choice although he does need to be relieved of the ill-fitting burden of wicket-keeping.

With more enterprise, they could choose another left-handed Kentishman in Mark Benson; Derbyshire's Peter Bowler; or Somerset's Mark Lathwell, who has become a symbol of young and dashing cricket (the sort that tends to make the selectors look like a gang of agorophobic godfathers). Mike Slater had less experience of first-class cricket than Lathwell when he and Mark Taylor destroyed England with their opening 260 at Lord's. He was pleased to be chosen for this (his first) Test series, but not unduly surprised. Clutching a beer afterwards, he beamed and shrugged. 'I felt good. The pitch felt good. Why not do well?' Try telling that to an English cricketer just now.

I am glad Gooch is to stay in charge for the third Test at Trent Bridge, in defiance of Australian predictions and after his splendid batting performance in the first at Old Trafford. In the long term, though, I favour one of the thoughtful breed of captains - like Ray Illingworth or Fletcher - skilled at getting the most out of the least. I could be wrong, but my instinct inclines towards someone like Yorkshire's Martyn Moxon rather than, say, the hard-hitting, straightforward Hugh Morris, skipper of Glamorgan. Interesting candidates will be easier to assess at the end of the season. Rather the selectors than me.

'LET'S face it,' a sports agent once told me. 'Women's sport is about sex first, performance second.'

In European golf, particularly in Britain, the prejudices are nursery school and public school in equal measure, this means three supremely talented players are almost unknown. Jack Nicklaus could be fat and famous. But Helen Alfredsson, Laura Davies and Trish Johnson need to play like Hogan and look like Madonna. Is the deft and devious mind of an agent truly unable to sell mere skill and personality? Will his next-of-kin, the sponsor, really not buy it?

When it comes to Alfie, Laura and Trish, perhaps personality is a polite way of putting it. Each is blessed with charm, tenacity and vulnerability, but they are all highly competitive and live as fiercely as they play.

The facts that these three Europeans (who play this weekend at the BMW European Masters at Golf du Bercuit, just outside Brussels) are all in the US LPGA Tour top ten and all played in Europe's drubbing of the crabby, ungracious Americans in last year's Solheim Cup is of interest only to a faithful handful.

Alfredsson, 28, spent her youth in stilettos as often as spikes. She was a catwalk model in Paris. But she gave that up: 'It was a meat market. It was just make-up, calories and drugs. And I got out of it fast. Now I wear long shorts to hide my cellulite.'

She trained in Sweden's elite golfing academy, before going to college in San Diego. There she was twice banished from the golf team and went off with the soccer coach, Leo Cuellar. Cuellar, a former Mexican footballer, is now her fiance. 'We play many games together, but whether it's backgammon or cards, we have to beat the hell out of each other,' she says.

To Alfredsson quitting is anathema, tantrums occasional. Spectators like her tantrums. They can be louder and more richly worded than many of Lenny Bruce's best performances. Last year she was America's rookie of the year. This year, she has already won their first major, the Nabisco Dinah Shore.

Davies has become accepted in British sporting circles less because she won the British and US Opens of 1986 and 1987 respectively than because she is far more knowledgeable than most of the men on the television quiz A Question of Sport.

Her golf game is built on instinct and gargantuan power. And no coach. She continues to support the European circuit in spite of its disastrous management history. During tournaments she organises football and cricket matches. And plays in them. (You can just imagine Nick Faldo doing that. What would his personal fitness trainer say?) She is a mediocre spin bowler, a sterling bat and a bit like Niall Quinn, the gangling Irish striker

She says: 'I like a gamble. I like driving cars too fast. I love sport. Any sport.'

Talk to her about football, for example, and you get neither ignorance nor platitudes. Rather: 'Graham Taylor is a prat. I lost all respect for him when he dropped Chris Waddle. And you can quote me.' This sort of outspokeness gives agents hypertension.

Johnson, Davies' 27-year-old partner in cricket and crime on tour, finally found recognition this year by winning two consecutive US tournament. Her long game is less spectacular than either Davies' and Alfredsson's, but from 80 yards or less she is deadly. At last year's European Masters she was unwise enough to have me caddy for her, when her regular valet was stranded in the US. Her concentration, dedication and shot-making are on a par with, say, Vijay Singh on the men's tour. But I bet Vijay does not drive to the course like Trish. She became intolerant of Belgian traffic and every morning for six days insisted on driving the wrong side of the road. This was not a little bit of overtaking. This was stretches of up to a kilometre at 120km an hour.

Johnson, Davies and Alfredsson, like to live a little. They are throwbacks to the days before golfers played to earn rather than to win. They play for love first, money second. They play for a win, not a place. A game populated by a thousand clones of Scott Simpson ought to be grateful.

IN ENGLAND the summer suit is still a rarity. The Englishman views it as a purely practical necessity rather than an item to be enjoyed.

Men should learn to enjoy wearing suits; they are, after all, the foundation of men's fashion. Over the past few decades the 'designer suit' has been growing in status, gaining more cache than its bespoke relation and reaching a high-point in the 1980s. Style and taste came to be seen as something you could purchase along with everything else - and there is nothing wrong with that. In many ways it has proved a boon to tailors who are now visited by men who have some idea as to what they want and require in a suit.

If you buy 'off the peg' you get a ready-made style. When you visit a tailor he works with you to interpret your ideas and to advise and guide you through the complexities of detailing and fashion. One of the great advantages of having a suit made is the large selection of cloth to choose from.

Richard James delights in using wonderful fabrics - 'all British,' he will proudly tell you. He has made a classic suit in denim, that most classless of fabrics, at the made to measure price of Pounds 750, plus VAT.

He excels not only in choice of fabric but also in use of colour, which is hardly surprising since he trained as an artist.

Unlike Richard James, Mark Powell does not have a Savile Row address, his studio is up several flights of stairs in the heart of Soho. Do not be put off by the exterior for once inside you will find one of the most imaginative and skilled tailors in London. He will look after his clients' needs but also offers a strong personal signature so whatever suit you choose it will never be described as boring.

You could pick a suit in navy or grey wool for the office or in lightweight flannel to punt past the Stewards' Enclosure at Henley.

His tailoring is quintessentially English in cut and cloth, acknowledging classical tailoring skills but not being constrained by them. He has also developed a washable suit made of treated linen or cotton which is perfect for the man who travels a great deal. A two-piece starts at Pounds 450 and will take two to three weeks to make. If you feel uncomfortable visiting London's Bohemia then he will visit you at your office bringing with him fabric books, his portfolio and his charm.

Most men wear woollen suits made from cloth weighing 11 ounces which can, with the addition and subtraction of layers be worn throughout the year. For really lightweight suits, suitable for summer wear, 9oz or 10oz is preferable.

Linen is a wonderful fabric but because it creases it is not really suitable for work, however it is perfect when worn in a casual manner and, like any summer suit need not always be worn with a shirt and tie. They can be replaced by T-shirts, sweaters in fine cotton, or linen and waistcoats. Espadrilles or plimsolls taking the place of brogues to give a louche, between-the-wars, Riviera look.

The Italians have always been expert in the casual wearing of suits. Giorgio Armani is a past master at this look. His Emporio collection not only offers suits ideal for the office but also for summer holidays. His suits have all the right fashion details and remain classics.

Another designer well worth looking at is Romeo Gigli, who creates 'easy dressing' suits in 100 per cent linen, and in a linen/Lycra mix which does not crease. He also uses a fine summerweight wool and he chooses colours beautifully to complement his unstructured look. Linen suits can be bought as separates (jackets about Pounds 420, trousers, Pounds 150), the wool ones as a suit (from Pounds 600) and the peau de peche versions are also sold separately (jackets, Pounds 370, trousers Pounds 150). The range can be seen at the recently opened shop in South Molton Street, London, W1.

Romeo Gigli, it seems, is interested in promoting 'the sensitivity of a man.' In England it is Paul Smith who is sensitive to customers' needs. He has helped to keep alive the suit as an alternative to the jacket and trouser. The Floral Street shop is the perfect place to start your search for the summer suit and there are plenty of accessories, such as v-neck cotton slipovers, as well.

Whether you choose designer or bespoke, choose wisely. Do not be frightened of asking for advice. In England there is a short summer and the days when you need a real summer suit are few so the one you choose should be one you will really enjoy wearing for years to come. Above all, remember, not to dry clean your suit after just a few outings - it will knock the life out of it. Simply air the suit on a clothes line.

SOME OF YOU may be wondering how the Browns/FT fashion workshops went. Well, they seemed to be a huge success. In the end we held two as the first was over-subscribed by the first post. For me it was lovely to meet so many readers - and it was particularly rewarding that so many came from outside London. Everybody I spoke to enjoyed seeing what some of our designers are up to, to see just how a fine jacket can be made to work for its price-tag and how a suit can be worn in many different moods. It was extraordinary to hear so many lovely women say that they felt so diffident about their wardrobes, but it was good to feel that we gave them the confidence to experiment. The clothes were shown on the Browns' staff who, like women everywhere, came short and tall, skinny and Junoesque - but all looked terrific. This, we hope, is what the evening did - encouraged every woman there to find her own style and to realise that perfect bodies exist only in glossy magazines. The rest of us can look good, too. We may do it again this autumn - and possibly something for the chaps - so watch this space.

SUNGLASSES are a sure sign that the temperature and human alienation are soaring. Armies of eyeless aliens hidden behind shatter-proof, glare-proof and people-proof glass suddenly hit the city streets.

Do you feel cut off from human response when struggling to communicate with someone whose eyes, the window to the soul, are curtained from you? Have they noticed you? Are they listening? Are you boring them? Have they lost their heart to you? Have they a heart at all?

Sunglasses simply strike me as bad manners. So, why not headwear instead? After all, England is the home of the hat.

You might argue that sunglasses are practical and glamorous. Well, not entirely. How many pairs have you lost? And is it really so glamorous to look like everyone else, a pale imitation of a Hollywood star feigning privacy behind such an attention-seeking fashion statement? Let's bring a human face back to fashion and top it with a titfer.

Trimmed or untrimmed, the bigger the hat, the better. But you have to be shy to wear one.

Shy? Let Philip Treacy, a fashionable London milliner, explain: 'Lots of my customers wear a hat if they are going to a big event and they feel nervous. Yet nobody would know they were shy as they have this aesthetically pleasing thing attached to them.'

A hat can not only counter shyness but can do wonders for a poor complexion. We have all suffered days when even a trowel's worth of make-up fails to cover a bad skin. Try a shading and disguising hat instead and if things are really bad, a polka dot veil should do the trick]

A hat can replace an umbrella and you are far less likely to leave it behind. The Archbishop of Canterbury found his hat a useful storage spot when crowning George IV in 1821. When the monarch staggered up the aisle weighed down by his heavily-emdroidered mantle on that steaming June day, he had used more than 20 silk handkerchiefs to mop his royal brow. He handed the sodden mass to the Archbishop who promptly popped them under his mitre.

Hats can be economical. One smart dress or suit can be transformed by using a variety of hats.

The hat has had a hard time ever since the majority of children stopped wearing them to school. The 1960s generation dropped them in favour of hair-dos. Now, in typical defiance of their parents, today's young love hats. In America they are the rage. Saks on Fifth Avenue, New York, has recorded a 300 per cent increase in millinery sales during the past year.

ANYBODY in London this weekend and with even the smallest interest in wining, dining and setting a fine table should head for The House & Garden Eating In Show. It runs until tomorrow evening (10 am to 6pm today, 10 am to 4.30 pm on Sunday) and there is so much going on I hardly know where to start.

There will be wine tastings, table settings and complete kitchens as well as demonstrations by some of our most famous cooks - Michel Roux (Cooking For Your Pleasure), Antonio Carluccio (A Passion for Pasta), Anthony Worrall-Thompson (Bistro Cooking at Home), Bruno Loubet (New Season's Vegetables) and more. There will, of course, be masses to eat - the catering is being run by Anton Mosimann and all around will be mouth-watering temptations of every kind.

Those who have always wanted a more dashing sort of table will be inspired by settings by Garrards, Liberty of Regent Street, Wedgwood, Tricia Guild and Zandra Rhodes's own idiosyncratic approach to the art of the table, photographed here left.

Zandra has come up with a rich, exotic table setting, part modern, part ancient, part British, part foreign. The table cloth is her own design. The cutlery is Acripole Dore (Pounds 850 for a 44-piece canteen) from Harrods, but rumour has it that it will be reduced in the forthcoming sale. The quirky bowls and setting plates are by Carol McNichol, one of our leading ceramicists, and cost Pounds 42 each for the bowls, Pounds 60 for the plates.

The flowers are by Paula Pryke of 20, Penton Street, Islington, London N1 (tel: 071-873-7336) while the four-tiered tulip vase is 18th century and costs Pounds 800; similar versions can be ordered through Zandra Rhodes' shop at 85, Hammersmith Road, London W6. The printed silk cushions are all made by Zandra Rhodes - to order - at Pounds 150 each. The little figurines are by Albany China.

The show is on at The Business Design Centre, Upper Street, Islington, London N1. Tickets cost Pounds 9 and can be bought at the door or by ringing the ticket hotline, 071-288-6888.

WE HAVE all been told many times that nineties-style is simple style. Conventional wisdom has it that overnight the bad old sumptuous ways became demode and the truly chic household was suddenly transformed into a model of pared-down simplicity. Reality, of course, is different. The words may be easy to say, realising it is much less easy to bring off . . . particularly for those whose houses are still laden with the legacies of 1980s chic.

There are many, though, for whom the new wisdom chimes with a change in the inner psychology, who find their natural tastes and inclinations veering towards a more pared-down way of life, who feel an instinctive rebellion against the over-blown excesses of the eighties and who long to translate this into a cleaner, fresher-looking home. What they need is a 1990s version of Mrs Beeton, a kind of comprehensive encyclopaedia or guide-book to the new life-style. Needless to say, where there is a gap, something usually fills it and this week sees the launch of . . . guess what? . . . a primer on simple chic.

Chic Simple* is a cross between a visual record, a sourcebook and an evangelical tome. It goes in for lots of inspiring photographs and plenty of uplifting aphorisms, all homing in on the wondrous benefits of simplicity.

Anybody who is anybody in design circles has a go. Here, for instance, we have Andree Putman, that meteor of the French design scene who designed offices for Jack Lang, the French Minister of Culture, as well as smart boutiques in almost every capital of the world. 'Unless you have a feeling for that secret knowledge that modest things can be more beautiful than anything expensive, you will never have style.' Then, on comfort: 'Of course, I love seven pillows behind me, but physical comfort is never the first thing. I prefer spiritual comfort, by which I mean space, light (natural, as well as artificial), contrast of textures, and pure lines. I never look for literal comfort, but for something that allows my mind to rest.'

Then we have Sir Terence Conran: 'I firmly believe that plain, simple things are superior to flashy, complicated ones. Something that is simple and satisfying is a greater achievement than something fussy. Good objects are designed with honesty, integrity, simplicity, and guts. A plain glass milk bottle can ultimately be more impressive than an intricate silver gilt pitcher.'

If these are the sort of sentiments that you feel comfortable with then Chic Simple has a lot to offer. It presents a powerful visual argument for restraint, quality and purity - most floors are wooden, most walls white or cream, objects are functional, streamlined and - it goes almost without saying - efficiently designed.

Simple, often neglected things, are photographed in a way that makes one look at them properly and see their beauty - a battered table (Candice Bergen is quoted as saying 'I pay a fortune for these battered tables, and my husband says, 'Aren't you going to paint them?' And I say, 'You don't understand the concept here','), a collection of some everyday kitchen utensils, an old cupboard, a couple of wooden chairs - 'A chair is a very difficult object to design,' says Mies van der Rohe. 'A skyscraper is almost easier, that is why Chippendale is famous.'

If a consensus does emerge it is probably best summed up by Le Corbusier - 'Space and light and order. These are the things men need just as much as they need bread or a place to sleep.'

It is probably evident by now that this is almost a compendium of pictures, philosophies, poetry, attitudes, all adding up to a package of considerable charm. It is a book, above all, to dip into but it is also a reference book, for the practical bit comes last - at the back is a useful list of sources for the ingredients that make up the simple life. From the US to England, France, Australia and Japan there are the suppliers of highly functional lighting, of the best modern furniture, of the rugs and taps and kitchens.

The book itself can be bought from Muji branches at 26, Great Marlborough Street, London W1, 39 Shelton Street, London WC2 and 63-67, Queen Street, Glasgow. Muji, regular readers may remember, is the Japanese company dedicated to pursuing the anti-label way of life, and which will be filling its windows with photographs of the Muji way to nineties living. The book is also available in branches of Waterstone's bookshops.

More visual inspiration, though of a much more vibrant nature, can be found in Tricia Guild's Design and Detail: The Practical Guide to Styling a House*. Here we have Tricia Guild's sure and individual way with colour, though stronger and more primary than in the floral days of old. If you have ever been hesitant about how to hang your pictures, how to make flowers look more enticing than a conventional florist's offering, how to present food so that it looks dramatic and appetising, here is your pictorial guide. Filled with ravishing full-colour pictures it would be a dull person indeed who did not come away with a few ideas on how to update their rooms.

Finally, The Reject Shop chain of stores has a small, simple mail order catalogue from which you can order a few of life's necessities - plain as plain sofas, straightforward chests of drawers, slatted folding chairs and a simple series of dining tables. The lines are clean and pleasing, the prices good. Find the catalogue at any one of The Reject Shop's many branches or telephone 071-736-7474 for a free copy.

*Chic Simple is published by Thames & Hudson, Pounds 12.95. Design and Detail by Tricia Guild is published by Conran Octopus, Pounds 12.99.

THE RAJ AT TABLE: A CULINARY HISTORY OF THE BRITISH IN INDIA by David Burton Faber, Pounds 14.99, 240 pages

FOODS FROM FRANCE by Quentin Crewe Ebury Press, Pounds 15.99, 160 pages

PASSION FOR PASTA by Antonio Carluccio BBC Books, Pounds 15.99, 192 pages

THIS IS the Raj seen through the kitchen door. But this entertaining, and at times very amusing, book is not just for cooks, in spite of its 60 exotic and saliva-producing recipes.

Burton, a New Zealander, has taken pains to discover and share with us his discovery of the enchantments and chaos of colonial and Raj food and cooking habits. So, this is also an excellent and authentic contribution to the social history of the era.

The Raj left several enduring legacies: parliamentary democracy, a legal system, health services, cricket, and the English language. But the reverse traffic was not very significant. It made no widespread or fundamental impact on British social and political institutions.

Today, the Indians are, with total British collaboration, practising a benign form of curried kebab imperialism in reverse. Indian cuisine, sneered-at by pukka sahibs and memsahibs of the raj, proliferates in the UK as a welcome aspect of contemporary British life.

Yet, it took the British a long time to learn there was more to Indian cuisine than kedgeree, curry powder and mulligatawny soup. (Mulligatawny is anglicised corruption of the Tamil words milagu and tanni, meaning pepper water). Indeed, this change has come about only in recent years.

Social life, eating and cooking habits underwent several transformations during the 300 years the British ruled India. In the 17th and 18th centuries, expatriate men were content to live like the Indians and ate betel nut, smoked the hukka (hubble-bubble) and kept local mistresses.

I learnt a thing or two from Burton. Up to the early 17th century, for instance, he tells us: 'In England, forks were still not considered proper eating utensils for a gentleman of the time, and the English maintained the medieval custom of scooping food to their mouths with bread sops which they held in their hand - an identical practice to the Indians, both Muslims and Hindus.'

At the same time, Burton deflated my gastronomical ego by declaring that chillies, potatoes and tomatoes - much-used ingredients of Indian cuisine - did not originate from India. They came from South America through Portugal, he says. Another illusion gone.

Social life in British India was governed by a leisurely pace. Burra Khanas - the grand feast - was a common feature. It took time to organise and, once launched, went on until the early hours. Later the British lapsed into the dreadful habit of dressing for dinner, even in the summer months.

Eccentricity was an accepted part of imperial life: indeed, Noel Coward's well-known doggerel about 'Mad (dogs and) Englishmen' is not all that far off the mark. Some of them did the oddest things. The Rajwallahs made a fetish over the order of precedence at gubernatorial banquets, and Burton relates a topping anecdote.

One governor found himself sitting between the wives of recently-knighted husbands. Each thought herself superior to the other. Finally, the one sitting on the left could not restrain herself. 'I suppose, in a place of this size, it is difficult to know sometimes just how to place people at table,' she said.

She met her match in the governor, who replied, coolly: 'Not at all. You see, the people who matter do not mind, and the people who do don't matter.'

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THE IDEA for Foods from France is deceptively simple. Take 18 foods for which French regions are famous, such as oysters from Brittany, foie gras from Gers, truffles from Drome, chickens from Bresse and wild mushrooms from the Dordogne. Throw in two distinctive drinks, Sancerre and Armagnac, and track down the finest producers of each of them.

But in the hands of Quentin Crewe and photographer John Brunton, this simple tour becomes a complex affair, revealing much that is distinctive with the world of French gastronomy.

Take their visit to La Dombes, an area north-east of Lyon where 1,000 lakes supply the nation's finest frogs. The first fisherman to whom they were directed would not meet them in case their questions aroused the suspicions of the taxman. Then, they were told that local restaurants served only frogs imported from Albania or Greece.

Finally, with the help of Philippe Jousse - the chef now in charge at Alain Chapel's renowned restaurant at Mionnay - they tracked down Rene Maisson, who catches frogs with rod and line for a living.

The manner in which Crewe and Brunton stumble across their reclusive producers is one of the book's charms. En route, two further aspects of French haute cuisine become obvious.

One is that, however rich the ingredients of French cuisine, the individuals producing them struggle perpetually to make a good living. Then, by a clever juxtaposition of recipes using these ingredients, the book shows how many top chefs depend on these individuals if they want to continue to produce food that is distinctive and representative of its terroir.

There is a bitter finale, though. While the book celebrates the work of these producers, it also depicts them as one of Europe's vanishing breeds, trapped between EC legislation which affects how they produce and increased pollution which is reducing how much they can produce. They need a book like this to highlight their plight.

Meanwhile, interested cooks will thoroughly enjoy the interviews, recipes and photography.

FEW FOOD books manage to convey the same enthusiasm on the front cover as that of their contents, but Carluccio's Passion for Pasta is an exception. It shows the author tucking in to a Parmesan cheese stuffed with taglierini, tomatoes and basil. Good culinary advice is dispensed and unusual recipes - such as macaroni with sardines or agnolotti with ricotta and truffle - are explained concisely.

A GASTRONOMIC highlight of a visit to Texas two years ago was dinner in the restaurant at The Mansion on Turtle Creek, Dallas, writes Lucia van der Post. It was my first visit to Big Bend country. I knew nothing about south-west cuisine; and as for Dean Fearing, The Mansion's celebrated chef, all I saw was a long-haired young blond who looked more like a rock musician.

Despite the alluring menu, jet lag meant that I lacked appetite; but Fearing said he would just bring us little tasters of his favourite things. Delectable titbits followed thick and fast: a soft-shell crab sauced subtly; a filled taco spiced with a vigorous salsa; tortilla salad with little corn fritter; wood-grilled snapper on corn puree. I have forgotten most of the details but well remember the delight.

The good news is that Fearing is coming to London's Lanesborough Hotel to cook for a week from July 2-9.

In America, he is already the kind of big-name chef that Raymond Blanc and Marco-Pierre White are in Britain. His special accomplishment is to weave together the ingredients and techniques of Asian, Mexican and southern US cooking. The result is spicy, robust and filled with earthy flavours - yet subtle, too.

His dishes at the Lanesborough will include warm lobster taco with yellow tomato salsa and jicama salad; wood-grilled red snapper on corn puree with three sauces (black bean, papaya and red chilli); and south-west applejack cheese crumb tart.

The dining room and conservatory will provide set-price menus for lunch and dinner: Pounds 20.50 for lunch in the conservatory and Pounds 24.50 in the dining room, while dinner will be Pounds 26.50 and Pounds 29.50 respectively. An American Independence Day brunch in the conservatory on Sunday, July 4, will be Pounds 24.50.

The first 20 Weekend FT readers to book for either lunch or dinner (mentioning the Weekend FT) will get a complimentary bottle of either Jordan's Chardonnay or Jordan's Cabernet Sauvignon. Tel. 071-259 5599 for reservations.

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Two new names for those in north London fond of good food, writes Nicholas Lander. Beth's is where Keats restaurant used to be at 3a Downshire Hill, NW3 (071-435 3544), with Beth Coventry as head chef. Open seven days a week.

More unusual is the first-class traitteur/delicatessen Pagnol, opened recently at 170 Regent's Park Road, N1 (071-586 6988). Open Tues-Fri 10-8, Sat 10-6.

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The National Organic Food and Wine Fair takes place at Ryton Organic Gardens, Ryton-on-Dunsmore, Coventry (0203-303 517) on Friday afternoon, July 9, and all day Saturday, July 10. Tickets Pounds 5 on the day, Pounds 4 in advance.

'I say Weihenstephan.'

'And I want Pilsener.'

SO SAY two of the Prussian wedding guests in Theodor Fontane's 1897 novel Der Stechlin. By this time, Berlin and Prussia had fallen to a two-pronged beer attack from Bavaria and Bohemia.

Just like the rest of Europe, Berliners once contented themselves with the reddish-brown beers and ales brewed locally; in this case, those of Bernau and Werder, towns to the east and west of the capital. The first Pilsen beers arrived with the railway in the 1850s; the Bavarians came a little later.

As the century went on, Berliners achieved a small compromise by hopping these new, yellow beers a little more to the north German taste. The result was the Berliner Molle. South Germany resisted more manfully, but even Bavaria has lost ground to the Bohemians this century.

Bavarian beer originally was a dark brown lager but, in the past 30 years, the taste has gone over to light, bright beers; only the older generation of Muncheners have clung to their traditional Dunkelbier. By the end of the century, Pilsener is likely to have won over an even greater chunk of the Bavarian population.

The Bohemian influence has spread to the beers of Alsace, Spain, Portugal, Mexico, Jamaica and the United States: all are, to some extent, inspired by the soft-water, bottom-fermented, golden-hued beers of Pilsen.

Since the 1960s, the same process has hit Britain. Bass-Charrington says 'lager' accounts for 80 per cent of its sales - even though the mainstay is Carling Black Label, a rather bitter lager closer to the north German type.

Of all the countries to have kept faith with their brewing traditions, Belgium excites the most interest from enthusiasts. This is as it should be, for it has more different styles of beer than anywhere else.

Take, for example, the great Trappist beers made only in five Belgian monasteries, and one across the border in Holland; dark, complex brews all. 'Abbey' beers often are made in the same style but they are produced 'under license' by commercial breweries.

Lambic and Gueuze both are wheat beers which have undergone spontaneous fermentation and maturation in casks. Gueuze goes a stage further and is fermented once again in bottle, like champagne. Some Lambic is flavoured with cherries or raspberries, the fruit being poured directly into the casks to set off a second fermentation. The result is fruity, certainly, but completely dry.

In Brabant, there are white beers which are made mainly from wheat, like a German Weizen. The difference is that the Belgians add aromatics, such as coriander and orange peel, then ferment the beers a second time in bottle. The result is a brew like Hoegaarden: lemony in colour with a slight yeast haze and a tangy, refreshing, citric character. Hoegaarden promises to be more readily available in Britain nowthat the main importer, Whitbread, has decided to release it through a number of up-market pubs.

In west Flanders there are 'red' beers, like those of the Rodenbach brewery which spend up to two years maturing in wooden vats; this gives them a strangely vinous quality. Indeed, in many ways Belgium produces the beers which come closest to the wine-lover's ideal. Michael Jackson in his book The Great Beers of Belgium, persists in comparing the beers to wines, perhaps because these are brews designed for long meditation.

With the exception of Whitbread, the brewers have been predictably slow in making Belgian bottled beers available to the on-trade. Lured into a pub the other day during the brief heat-wave, I was thwarted completely in my attempts to find a decent, bottle-conditioned brew.

In the end, I had to make do with a bottle of Spanish San Miguel: a Pilsener-style beer which proved just one more example of the colonising zeal of the Bohemians.

Stockists of Belgian bottled beers include: the Beer Shop, 8 Pitfield Street, London NI (071-739 3701); Grogblossom and branches, 66 Notting Hill Gate, London WII (071-792 3834); the Beer Cellar, Thame, Oxfordshire (0844-260 500); and the York Beer Shop, 28 Sandringham Street, Fishergate, York (0904-647 136). All do mail-order sales.

A restaurant called Belgo at 72 Chalk Farm Road, London, NWI (071-267 2179), has a wonderful selection of bottled Belgian beers - and food to go with them.

BANANAS and canned pineapple are to blame. It was shiploads of these 'exotics' that put paid, early in the 1900s, to what had been a thriving gooseberry appreciation society.

In 1829, the Gooseberry Growers' Register recorded 722 different varieties grown in Britain. Today, it is rare to find more than one sort on sale, wherever you look - and that is likely to be an anonymous culinary variety as green as grass, hard as hail and picked horribly immature.

Fortunately, all is not lost. The scene might be dire in the shops but treasure trove is to be found at Brogdale,* the Kentish home of the national fruit collections where more than 100 varieties of gooseberry are grown. My visit there was a revelation. I always knew I liked gooseberries, but it was not until Brogdale's Dr Joan Morgan opened my eyes (and my mouth) to the choice available that I realised just how splendid and richly varied this fruit can be.

Gooseberry colours run the whole gamut of reds, from pink champagne through claret to nearly black. There are shades of amber and gold, palest jade and almost white. The fruit can be as small as a cultivated blueberry or as big as a gobstopper, perfectly round or elongated. A few types bristle with designer stubble, some are mildly hirsute, and others are as bald as a baby's pate.

The tastes of the best gooseberries are rich and full, sometimes honey-sweet, winey, complex and lingering. And the names of them roll off the tongue like a litany: Snowdrop, White Champagne, Golden Gem, Hero of the Nile, Lancer, Leveller (one of the best golden orbs), Pitmarston's Greengage, Langley's Gage (which hangs well on the bush and so becomes very sugary), Halmon's Dumpling, Cope's Jolly Butcher, Pendleton's Bullock's Hearts, Slaughterman (there are a lot of bloodthirsty names among the reds), and Whinham's Industry (perhaps my favourite).

Gorging on the real thing like these, ripened properly and picked freshly, whetted my appetite to serve a dessert of gooseberries - by which I mean three or four choice varieties, each displayed in its own basket or bowl, to be topped and tailed at table and popped into your mouth, like sweets, at the end of dinner. It might be a little much to dunk them in cream as well, but a few crisp little biscuits on the side do not go amiss - say, almond tuiles, macaroons or petticoat tails.

Such a dessert is fresh, healthy, and very easy for the cook. But, of course, it all depends on having access to tip-top gooseberries.

Next weekend, on July 3 and 4, Brogdale is holding a summer fruit festival with guided tours, displays, consultations with fruit experts and tastings of many summer fruits - strawberries, raspberries, cherries and currants as well as gooseberries. Visitors can, throughout the fruiting season, buy punnets of choice varieties to take home.

Dessert gooseberries are not only rarer than culinary varieties but are doubly useful. They can be cooked as well as eaten raw; and just as dessert apples often make better puddings than cooking apples, so dessert gooseberries make excellent hot puddings on so-called summer days chilly enough to bring you out in goose pimples.

The hot fruit salad in Elizabeth David's Summer Cooking is a lovely choice of gooseberry recipe for such days. It has, as she puts it, 'all the flavour and scent of a warm summer fruit garden.'

Stew gently without water 1 lb topped and tailed red gooseberries and 1/4 lb red currants sprinkled with a little sugar. After five minutes, add 1/2 lb raspberries and cook for just two minutes more. Serve very hot with thick, fresh cream.

For those who have access only to the little green gooseberries of commerce, I suggest my own adaptation of a classic apple pudding.

LITTLE GOOSEBERRY CHARLOTTES (serves 8-10)

This seems equally at home for Sunday lunch or a dinner party. Serve it on its own, handing round a bowl of cream whipped with a little elderflower syrup for those who want it. For a party, each castle-like pudding can be served surrounded by its own moat of pouring cream and crowned with florets of elderflower (if still in blossom) or a shake of caster sugar.

Ingredients: 2 1/4 lb green gooseberries, topped and tailed; 2-3 elderflower blossoms or 3-4 tablespoons elderflower syrup; 4-6 oz caster sugar; 2 oz flaked almonds, coarsely ground in a coffee mill or food processor; a loaf of good white bread; about 8 oz butter.

Method: Moisten a large, heavy-based pan with a couple of tablespoons of water. Add the gooseberries and cook very gently, with the blossoms buried among them if available, or add the elderflower syrup to the pan when the gooseberries have begun to pop and yield their juices.

When the berries are soft, crush them into the pan with a potato masher to make a not-too-smooth puree. Add 4-6 oz sugar (the smaller amount if elderflower syrup was used) and continue cooking over a very low flame for several minutes until excess moisture is driven off, leaving a thick and intensely-flavoured pulp.

The mixture will spit and plop as it cooks and will need frequent stirring to prevent catching and burning. Use a long-handled wooden spoon and protect your hand with an oven glove.

Set the pan aside, uncovered, so evaporation continues as the mixture cools. Then, stiffen the fruit by stirring in the freshly ground almonds.

Slice the bread thinly and cut out rounds to fit the bases of 10 cocotte dishes or dariole moulds of about 5 fl oz capacity. Fry the rounds in a little butter until crisp and golden brown and put them into the moulds. Melt more butter in the frying pan, dip pieces of bread into it to moisten them on both sides, and use them to line the sides of the moulds. The fit should be as neat and as tight as a jigsaw.

Spoon the cold gooseberry pulp into the bread-lined moulds, packing it down firmly. Cover with lids of bread, again dipped in melted butter to moisten them, and place the little puddings on a baking tray. Bake for 30 minutes at 425'F/220'C (gas mark 7) until the filling is hot and the bread is crisp.

Let the charlottes settle for 5-10 minutes after they emerge from the oven. Then, run a knife round the inside edge of each mould and invert the puddings on to warmed plates for serving.

*Brogdale Horticultural Trust, Brogdale Farm, Faversham, Kent ME13 8XZ (tel: 0795-535 286).

FLOWER beds are still ahead of themselves: for the rest of the year, I am pinning my garden's hopes on pots. In a pot, you can plant, plant late, re-plant, or move flowers to and fro wherever they are needed. You can sink potted lilies into borders and remove them, substituting Michaelmas daisies for a later season. When the roses have already peaked and the agapanthus are in bud late in June, half a dozen strategic flower pots lift the garden out of premature death. But they are best used with an art which we are still exploring.

For years, I thought in terms of one or two varieties only, segregated pot by pot: a mimulus in one, a pelargonium in another, and envy for the very dark purple strain of petunias which seemed to be grown only in Sissinghurst's front courtyard. Segregation is still the rule if you want to grow shrubs or train climbers in a single pot. Many good roses will flourish in confinement, as you can infer from Peter Beales' fine book, Classic Roses, where they are marked with a symbolic P. Probably, we should all grow roses more often in pots, but the excitement has shifted elsewhere.

A few brave spirits had always experimented, especially in great gardens like Powis Castle or Kiftsgate Court where the large pots housed mounds of mixed flower and foliage. In the 1980s, the art became bolder, propelled by amateurs but not by horticulturalists, whose handbooks still ignore the possibilities. Like others on the circuit, I learned most from Mrs Merton of The Old Rectory, Burghfield, near Reading. She massed dozens of different varieties into 27-inch pots, broke the rules triumphantly - and earned a colour photograph in the FT for June 1990.

I return to the subject because we all have more experience now. We also have another book on the subject.

Rupert Golby is an able garden-planter in the younger generation and his Container Garden (Headline, Pounds 16.99) has just appeared, illustrating 16 garden schemes for pots. The very best part is the final section where he prints a key to the plantings shown in each of the photographs.

Some of his sentences read like captions for postcards to which I find myself putting an image. 'In summer, the garden at the Old Rectory has subtle hints of Mrs Huntington's past . . . ' and 'Mike was interested to discover which of several blue daisy flowers would perform best in the tazzas.'

The most important section for us all, though, is a two-page interview with Susan Dickinson, who stands in the top flight of Britain's head gardeners. Service at Sissinghurst runs in her past, together with Hatfield and a long duet with Mrs Merton in which the two of them brought pot-planting to a new extravagance. She has now been signed up by Jacob Rothschild, although this book is rather coy about this unquestionable acquisition.

In his grand garden plans, pots are still a priority and she has lost none of the old panache. I find that she agrees on the ignored secret of success: it relies on heavy feeding. She feeds the Rothschild daturas every day with a high-liquid nitrogen fertiliser: in dry weather, she also waters them three times a day, noting that it reduces the risk of red spider ravages.

She even feeds the big-leaved sparmannia in a similar way although I have always found that it grows very freely, turning yellow - perhaps from starvation - on the lower branches. In 1992, she also fed all the petunias, heliotropes and lemon verbenas with a high nitrogen fertiliser once a week: 'They responded by producing deep green leaves and flowering madly until mid-October.' Everything else is fed on a high potash feed and the results confirm my own beliefs.

The new style is to over-plant wildly in pots between 2ft-2 1/2 ft wide. Begin by placing a tall plant in the centre and then cram in more softly-coloured summer perennials than others would believe possible. It works like a dream if you follow the Dickinson principle and use concentrated fertilisers until mid-September.

I have heard people say that designer-gardening in pots is very expensive and that it is an endless nuisance. On both points, I disagree, but readers of Golby's book may not immediately see why. He lists good sources for hand-made pots, but I hope that this high standard will not deter you from diving down-market.

Last year, I made up the numbers with several Far Eastern imports, on sale for less than Pounds 10 each at the Hampton Court flower show. I have just found some thin 'terracottas,' nearly 2 ft wide, selling at Pounds 6 each in the local garden centre. They will probably split in a very hard winter but, at that price, who cares?

Golby reiterates a tip which I, too, find useful for toning down the brightness of the cheapest type of pottery. Wet the surface; rub it with dry garden lime; spray it lightly with water again and, after several attempts, it will lose the colour of a pot on a patio on the Costa Brava.

As for the bother, watering is the worst of it. Here, Golby recommends lining each pot with a polythene bag to limit loss of water through its walls. He does not mention a trick which saved me even more trouble last year. When preparing the soil, mix in some water-retaining crystals, following the instructions about watering them first. The most widely-marketed is Swel Gel, which is satisfactory if you need to buy only in small quantities. It swells into long-lasting lumps of jelly and cuts down the watering of flower pots by as much as a half. You can even go away for a long weekend without fear.

Lastly, what exactly were those 'blue daisy flowers' which Mike was so interested to discover? Mike is busy discovering at Kew, and he has come to the conclusion which most gardeners share, anyway: that the longest-lasting half-hardy little blue daisy on the market is Felicia Santa Anita. Perhaps he has also discovered that you can easily train it with one central stem into the shape of a small standard: if not, you and Mike might like to try it, because it adds a touch of height in a family which otherwise sprawls.

THERE ARE times when a man is compelled to become more aware than usual of his puniness in the face of the force of nature; such as when he finds a river which he has crossed a sea to fish transformed between one day and the next from a gentle stream into a scaled-down version of the Ganges at the height of the monsoon.

In describing the events of my recent trip to Ireland, I shall endeavour to maintain a tone of ironic detachment, rather than give way to outrage and fist-shaking. I shall be philosophical, stoical, manly, for nothing is more tiresome than self-pity. At least I shall try - but it will be hard.

The events took place this June, a month which the poets and other ill-informed authorities tell us sees the first flowering of summer. This year it saw instead the coming of tempest and deluge. And while I, my heart full of childish excitement, was crossing the Irish Sea, the black clouds were following fast.

It was to have been a free-and-easy week. Having no money to spend, I would spend no money. I would follow my nose and my whim, helping myself here and there to a taste of the wonderful wealth of free (or virtually free) trout fishing with which Ireland is blessed.

That first day, I heard something on the news about people being rescued by lifeboat from their bedroom windows in north Wales - and foolishly allowed myself a secret smile of satisfaction that Ireland seemed to be escaping the worst of it. I was intending to fish an little stream called the Deel, one of a cluster of rivers west of Dublin (others include the Boyne and the Blackwater) which offer demanding but first-rate trout fishing.

My friend Niall proposed a post-dinner sortie to fish the sedge. As I stood outside his house getting my rod ready, there was a sprinkling of large drops of rain. By the time we neared the river, it was raining with serious intent. By the time we had legged it back to the house, it was beating down and we were soused.

It stopped about 22 hours later. A podgy Irish weather forecaster appeared on television with that guilty look of excitement that weather forecaster have when the weather achieves unprecedented awfulness, and announced that it had probably been the wettest day since Irish records began.

Unconsoled at the thought of witnessing the making of history, we splashed down to the little river and found that it was a big, angry cocoa-coloured river. There were no drowned sheep in it yet, but it seemed only a matter of time.

We were not finished though. Reports from the west asserted that the rains had held off, and we were soon hurtling through the floods towards the green, wooded county of Clare and the neat little village of Corofin, through which winds the river Fergus. Sure enough, as we headed down from the Slieve Aughty mountains, the clouds lifted.

The Fergus connects a famous and lovely trout lough, Inchiquin, with a string of lesser lakes, and is itself a remarkable and fascinating piece of water. Running entirely though limestone, it is clear, rich in weed and full of trout, some very big. It costs nothing to fish.

I know there are very big fish in it, because we met one. It rose on the far side of a gorgeous pool upstream from Corofin. There was a terrific gurgling suck as a late mayfly disappeared, followed by waves. With an immense cast, I landed my fly somewhere near, and the fish dashed at it and missed. There were more waves.

These waves so impressed us that we went up to the bridge, and down the other side so that we could attack the monster properly. First cast it surged heart-stoppingly at the fly, but again did not take. It then retired to ponder the folly of its greed, and was seen no more.

That evening the sun shone, and we had some very pleasing fishing for small trout which rose with gusto to a hatch of blue-winged olives. Mid-way through the following morning, after another vain assault on the leviathan of the pool, the rain reached Corofin. It was no fleeting downpoour, but had a settled long-term purpose, and it drove us away from the Fergus - vowing to return one day.

I had planned that the triumphant coda to my trip should be the catching of some salmon from the Cork Blackwater. We telephoned Frank, who guards the fishing with a love bordering on obsession. He had had 17 fish that week, four that day. Conditions were perfect.

Hardly had I said that I would be there next morning than it began to belt down. It continued until I got there, by which time the river was the colour of stout with a dash of milk. I flogged away for a day and a half without getting a touch, then carried out a strategic withdrawal back across the Irish Sea.

Since then, I have analysed my misfortunes, in a cool and reasoned way, searching for the positive side. There can only be one, and it recalls what they used to say at school about cross-country runs, arbitrary beatings and the like: Good for the character.

THE TROUBLE with photographs is that they do not last. Pull out your glossy wedding portfolio 50 years on and you might well find faded and discoloured sheets to dampen your golden wedding.

This is one of the reasons for the trend back to black and white photography. 'Because they are composed of minute fragments of silver you can expect black and white photographs to last much longer than colour prints, which are based on impermanent dyes,' said Gerry Clarke.

Clarke restores black-and-white photographs - dating back as far as the 1850s. At his workshop overlooking open fields near the Oxfordshire village of Kingham, Clarke is hard-pressed to cope with the flood of pictures that arrive from all over Britain, the US and Australia.

'For some reason a chap who runs a fish and chip shop in San Francisco keeps sending me work, and the other day I even had a visitor from Trinidad who had heard of me and managed to penetrate my rural isolation,' he said. 'It always amazes me the distances people travel to bring their old photographs to me.'

Many British customers, reluctant to commit their valued family archives to the post, visit and inspect Clarke and his enterprise before becoming customers.

Others - including several elderly ladies in Devon and north Wales - are happy to keep posting their family archival shots, half a dozen at a time. A woman from Dawlish, who always adds her age ('ninety-three-and-a-half') to her signature, has spent several hundred pounds over the past two years.

'With photographs anything up to 140 years old I am often dealing with items of great sentimental value that people only grudgingly leave in my care,' Clarke said. 'I get an inevitable finger-wagging lecture from virtually everyone that comes in here to see me. But I am always conscious that we are reckoned to have only 10 per cent of the photographs taken in Victoria's reign left in this country and I realise how valuable as historical documents the majority of the prints I handle will be in 100 years.'

Clarke works by the meticulous use of a De Vere 504 enlarger with a copy back as a rostrum camera. Using optical filters and a variety of techniques he has perfected over nearly 40 years he is able to restore faded images, eliminate stains and discolouration and remove evidence of creasing and tearing so that the restored prints are generally of a much higher quality than the originals he works from.

He is reluctant to replace missing images in sections of a print. 'Where there is a detail missing I leave it to the imagination. If it is a group I could always fill in a face, but I won't,' he said.

Clarke is a one-man band. When he started Photocare at 52, five-and-a-half years ago, one of his aims was to keep turnover below the minimum VAT level to avoid additional administration. He is finding that increasingly difficult. 'My attitude was that I wasn't necessarily chasing the last buck all the time, and I certainly wasn't into the horrors of VAT returns,' he said.

Having enjoyed 20 comfortable years in the building trade and with his three children now grown up, Clarke decided to concentrate on what he really enjoyed doing and to turn his hobby into a living.

He invested Pounds 10,000 of his savings, did a little of advertising in consumer magazines, and waited for customers.

'I was not desperately worried if the business started slowly. My wife was working and I knew I could count on some orders from people I had done work for when I restored photographs as a hobby,' he said. 'But nevertheless I had locked up a lot of my savings, so it was important that the venture was a success.'

He need not have worried. The word spread quickly and Clarke soon found he had a healthy portfolio of large customers such as military units and local authority and company archivists.

Although the basic price is low - Pounds 4.85 to photograph an original print and supply a 5in x 4in negative - many of the customers' orders are large. This and repeat orders means that the average price of a job is a healthy Pounds 100 or so.

This pleases Clarke, as Photocare is very much a value-added business. He estimates that materials comprise just under 10 per cent of turnover. As his only large overhead is his rent of Pounds 600 a quarter he can justifiably claim that his profitability as a percentage of turnover is probably as high as in any business.

'As it is a craft trade, in which I use my hands I am unlikely to make vast profits. However, it is a very satisfying means of making a living.'

If there are dark clouds they concern the problems of success. There really is too much work for one.

'I know that if I was actively considering growth I would easily be able to build up the institutional side of the business. They say nostalgia is the thing of the future, and Photocare has now grown to a point where it has a value, and so I must push forward.

'Employing someone else will inevitably take me over the VAT limit and we shall really be in business. It must happen - especially as there seems to be a dearth of people offering this kind of service.

'One possibility is for my teacher brother, who is a little younger, to join me. We could then possibly add a library of old photographs to our services. I already have a collection of nearly 5,000 and people keep offering them to me. Whatever happens I must do something - even if only to make sure I get back to the golf course when I reach 65]'

Photocare. The Langston Priory Workshops, Kingham, Oxfordshire OX7 6UP.

ENHANCED scrip dividends are worth so much more than normal cash dividends that it is desirable to take them up. In the case of a trust that has to pay income during the income beneficiary's life and after his death the capital to the remaindermen, what should the trustees do about this?

Would the trustees be meeting the interests of the life tenant and the remaindermen if they took the enhanced scrip dividends, sold the scrip shares and paid the proceeds to the life tenant (less any capital gains tax attributable to the sale of scrip shares)?

Subject to the precise wording of the trust deed, the trustees will be duty bound to elect for the scrip dividends. They would have a complaint of negligence to face if they failed to do so.

They should also ask the life tenant whether he or she wishes the scrip to be sold. If they cannot obtain the life tenant's instructions before the deadline for accepting the offer-to-purchase, they will probably be acting in the best interests of all concerned if they go ahead and accept it.

Subject to wording of the deed, it is likely that the scrip vests in the life tenant at the moment of issue. That being so, the trustees would not have any CGT liability in respect of the sale of the scrip, because their CGT position (and the life tenant's) will be governed by section 142 of the Taxation of Chargeable Gains Act 1992:

Before delivering the scrip or the proceeds of its sale to the life tenant, the trustees may consider it prudent to seek the advice of the trust's solicitor on the effect of the precise wording of the deed.

No legal responsibility can be accepted by the Financial Times for the answers given in these columns. All enquiries will be answered by post as soon as possible.

MY MOTHER was incapacitated and in a home for the elderly. She set up a joint account with my uncle so that he could administer her money for her.

I discovered that my uncle helped himself to some of my mother's money. Both are now dead. Did my uncle incur a debt in respect of my mother, and as my mother's sole heir do I have a claim on his estate? (I am a co-heir with my cousins, and we are all nephews and nieces as my uncle had no children).

All this was in Italy, is the law likely to be different there?

Before I describe how English Law would treat the problem you describe, I must emphasise that any remedy which you may have is a matter solely for Italian Law. Italian Law is based on Roman Law; English Law is not, and so the latter is an inadequate guide to the Italian Law treatment of your problem.

In English Law, the creation of the joint bank account created a trust. If your uncle misappropriated funds from the account, then he is probably in breach of trust.

That breach has caused a loss to the trust fund and he is therefore liable to reimburse the fund with the amount taken. Although your uncle ceased to be a trustee on his death, the liability of a trustee for a breach of trust survives against his executors and estate.

Compensation can therefore be sought by you and the other beneficiaries against the estate of your late uncle.

A trust is a concept peculiar to Anglo-Saxon Law and there is no such concept in Roman or Italian Law. However, I would find it odd if Italian Law did not afford you some remedy in such a situation.

This reply was provided by Barry Stillerman of Accountants Stoy Hayward.

No legal responsibility can be accepted by the Financial Times for the answers given in these columns. All enquiries will be answered by post as soon as possible.

RIVER PLATE and General Investment trust was a 19th century example of that recent fashion, the emerging markets fund. It was founded in 1888, specifically to invest in Argentinian companies. The policy was changed only in 1952, when it was allowed to buy securities anywhere.

The decision to go for a split structure came in 1987, when other trusts such as River & Mercantile and Scottish National were making similar moves. At the time, many people questioned the need for general trusts. Some disappeared through takeover; others restructured in an attempt to please their shareholders by eliminating the discount to net assets on which the shares traded.

River Plate was one of the first to launch zero dividend preference shares. These have first claim on the assets of the trust and their entitlement grows at a set rate of 12.28 per cent a year so that, eventually, they are repaid at 100p in 1996.

According to fund manager Jupiter Tyndall, these zeros have the best cover in the market, with the trust currently having enough assets to meet the final redemption value 2.5 times. Or, put another way, the trust's assets would have to decline by 23 per cent a year between now and 1996 for the zeros not to be repaid in full.

Because they are seen as safe, the zeros offer the lowest yields in the sector, with a gross redemption yield of just 7.4 per cent. But investors who have owned them since issue have had a good deal: the price has doubled and the increase is taxed as capital gain, not income.

The income shares receive all the revenue of the trust and are entitled to be repaid at 100p on wind-up. Jupiter Tyndall says there are enough assets to meet the final repayment value of the income shares 1.1 times. The final dividend was maintained last year at 8.9p and the interim dividend has since been maintained at 3p. On Wednesday's share price of 103p, the income shares are on a flat yield of 10.8 per cent.

Philip Middleton, analyst at Smith New Court, says the income shares are decent value provided the trust is able to maintain the final dividend.

The capital shares receive all the assets of the trust after the other classes have been repaid. As with other split trusts, there are two ways of assessing the asset value of the capital shares.

If you allow only for the present claims of the other classes, the net asset value is 131.9p, putting the shares (at 56p) at a whopping 58.3 per cent discount. But if you allow for the wind-up claims of the other classes, the assets per capital share are just 11p, according to Middleton. Thus, on a conservative basis, the shares are trading at a substantial premium.

As with most of the other trusts launched in 1987, it is the capital shareholders who have lost out. When River Plate was launched, the capital shares had assets of 250p each and an original trading price of 100p.

Middleton says the capital shares are 'a bit dear.' If the trust's assets grow at 5 per cent a year, he says the shares would return 9.2 per cent a year. He points out that a high asset growth rate is more difficult to achieve because of the high portfolio yield.

But a recent research note from Iqbal Assan, at Olliff & Partners, said the shares 'are among the most highly-geared in the sector and have considerable appeal for investors taking a bullish view of the UK equity market over the next three years.'

The note does, however, emphasise that the shares are a high-risk recommendation.

There are also warrants, which entitle the holder to buy capital shares at 250p each. Given that the capital shares will need to quintuple within three years for it to be worthwhile exercising the warrants, the latter are trading at just 2p.

The trust is managed by Michael Heathcoat Amory, a nephew of a former Conservative chancellor. He says the trust has a large number of stocks in its portfolio (200), with an overweighting in small and medium sized companies which has helped its performance lately. In the six months to April 30, total assets rose by 19 per cent, compared with a rise of 10.5 per cent in the FT-A All Share index.

The 10 largest holdings at the end of April were: PWS Holdings (a small insurance broker), Shell, BAT Industries, General Electric, Scottish Power, Williams Holdings (convertible), Merlin Jupiter American Capital fund, Mezzanine Capital and Income trust (income shares), and Dalgety. Heathcoat Amory says the yield on the portfolio is 6.5 per cent.

The holding in Merlin Jupiter American Capital (a Jupiter Tyndall managed unit trust) has recently been reduced and Heathcoat Amory says that Jupiter Tyndall funds now make up just 6 per cent of the trust's assets.

Smith New Court's Middleton adds: 'In terms of fund management, the trust has performed creditably without being outstanding.' Figures from the Association of Investment Trust Companies show River Plate's total return of shareholders' funds has been above average (for the split capital sector) over the past year, below average over the past three years, and above average over five years.

Key facts

Total assets at the end of April were Pounds 99.1m and the annual management fee is 0.5 per cent of assets. The trust is due to be wound up on October 31, 1996.

Board

Peter Hill-Wood, the chairman, is also vice-chairman of Hambros Bank. Other outsiders on the board are Andrew Buxton, a director of Norwich Union; Harry Littlefair, former vice-chairman of Allied Dunbar Unit Trusts; and Simon de Zoete, a director of BZW. Jupiter Tyndall men on the board are John Duffield, Heathcoat Amory and Timothy Pilkington.

Savings scheme and Pep details

There is no savings scheme and Jupiter Tyndall does not run Peps. But River Plate is Pep-qualifying for those with a self-select plan.

THE TABLE shows capital gains tax (CGT) allowances for assets sold in May. To use it, multiply the original cost of the asset for the figure shown for the month in which you bought it. If you subtract the result from the proceeds of your sale, the balance will be your taxable gain or loss.

Suppose that you bought shares for Pounds 5,000 in June 1985 and sold them in May 1993 for Pounds 13,000. Multiplying the original cost by the June 1985 figure of 1.479 gives a total of Pounds 7,395.

Subtracting that from the proceeds of Pounds 13,000 gives a capital gain of Pounds 5,605, which is below the 1993-94 CGT allowance of Pounds 5,800. If you realise no other gains during the year, the profits should be tax-free.

If you sell shares bought before April 6 1982, you should use the March 1982 figure. The RPI in May was 141.1.

----------------------------------------------------------------------- CGT INDEXATION ALLOWANCES: MAY ----------------------------------------------------------------------- Month 1982 1983 1984 1985 1986 1987 ----------------------------------------------------------------------- January - 1.708 1.625 1.547 1.466 1.411 February - 1.701 1.618 1.535 1.461 1.405 March 1.776 1.698 1.613 1.520 1.459 1.403 April 1.741 1.674 1.592 1.489 1.445 1.386 May 1.729 1.667 1.586 1.482 1.442 1.385 June 1.724 1.663 1.582 1.479 1.443 1.385 July 1.723 1.654 1.584 1.482 1.447 1.386 August 1.723 1.647 1.569 1.478 1.442 1.382 September 1.724 1.640 1.566 1.478 1.435 1.378 October 1.715 1.634 1.556 1.476 1.433 1.371 November 1.707 1.628 1.551 1.471 1.421 1.365 December 1.710 1.624 1.553 1.469 1.416 1.366 ----------------------------------------------------------------------- Month 1988 1989 1990 1991 1992 1993 -----------------------------------------------------------------------

January 1.366 1.271 1.181 1.084 1.041 1.023 February 1.361 1.262 1.174 1.078 1.035 1.017 March 1.355 1.256 1.162 1.074 1.032 1.013 April 1.334 1.234 1.128 1.060 1.017 1.004 May 1.329 1.227 1.118 1.057 1.013 June 1.324 1.223 1.114 1.052 1.013 July 1.322 1.222 1.113 1.055 1.017 August 1.308 1.218 1.101 1.052 1.016 September 1.302 1.210 1.091 1.048 1.012 October 1.289 1.201 1.083 1.044 1.009 November 1.283 1.191 1.085 1.041 1.010 December 1.279 1.188 1.086 1.040 1.014 ----------------------------------------------------------------------- Source: Inland Revenue -----------------------------------------------------------------------

FOOD retailers have not enjoyed favourable conditions, at least not in the stock market. But Nurdin & Peacock has proved something of an exception. Since late last year the shares have risen from 130p to the current level and deputy chairman David Rowley has sold 110,000 shares at 219p. He has effectively halved his holding to just under 96,000 shares.

Although quoted under food retailing, the company has been cushioned from the worst effects of pressure on margins by its operations in the cash and carry business. This is reflected in a trend of increase in earnings which looks set to continue.

The chairman and managing director of Dagenham Motors, David Philip, has sold 375,000 shares at 105p for personal reasons. Like all motor dealers Dagenham has enjoyed something of a rally in the share price over the last six months although it is perhaps less pronounced than some of its peers.

Shares in Comac Group, the computer consultant, took off when it was announced that Philip Swinstead had bought 1.25m shares and joined the board as chief executive. Swinstead cut his teeth at SD-Scicon and the fact that he had paid a substantial premium to the market price is a positive sign. A few days later two directors took the opportunity to reduce their holdings on the back of the rise in share price. Mike Winsley, managing director, sold his entire holding of 480,000 shares and is retiring from the board while Mr Lambert sold 50,000 shares of which he is the beneficial holder and a further 450,000 in which he has a non-beneficial interest.

----------------------------------------------------------------------- DIRECTORS' SHARE TRANSACTIONS IN THEIR OWN COMPANIES (LISTED & USM) ----------------------------------------------------------------------- No of Company Sector Shares Value directors ----------------------------------------------------------------------- SALES ----------------------------------------------------------------------- Blick Elns 142,500 698 4 Bodycote Intl Cong 100,000 282 1 Bradford Prop Trust Prop 8,000 15 1 Comac Group BuSe 530,000 382 2 Dagenham Motors Grp Motr 375,000 394 1 Iceland Group FdRe 360,000 875 1* Meyer Intl BdMa 5,000 18 1 Nurdin & Peacock FdRe 110,000 241 1 SEP Industrial Hldg EngG 260,000 82 1 Shell O&G 75,000 468 1* ----------------------------------------------------------------------- PURCHASES ----------------------------------------------------------------------- Aerospace Eng EngA 130,600 27 2 Allied-Lyons Brew 3,000 16 1 APV EngG 11,000 11 2 Clayform Properties Prop 110,000 26 2 Comac Group BuSe 1,250,000 750 1 Glaxo Hlth 2,772 18 1

Harrington Kilbride Med 5,000 11 1 Henderson Eurotrust InTr 15,160 13 1 Lucas Industries Motr 12,952 18 1 Pegasus Elns 25,000 38 1 South Stf Water Wts Watr 9,500 73 1 ----------------------------------------------------------------------- Value expressed in Pounds 000s. Companies must notify the Stock Exchange within 5 working days of a share transaction by a director. This list contains all transactions, including the exercise of options (*) if 100% subsequently sold, with a value over Pounds 10,000. Information released by the Stock Exchange 14-18 June 1993. ----------------------------------------------------------------------- Source: Directus Ltd, The Inside Track, Edinburgh -----------------------------------------------------------------------

CURRENCY PLAYS are an important component of international bond investing and fund managers indicate that this is where the main gains in coming months may be.

International bond funds deal in securities issued by foreign (and UK) governments and corporations. The opportunity for better performance is, in theory, greater than for onshore funds since they have a choice of bond markets to invest in and are able to use different currencies to their advantage. But with greater opportunity comes greater risk: these funds are regarded as more volatile than onshore bond funds, although less risky than equities.

The table shows the 10 largest funds with one year performance figures figures. On that basis, Schroder's Global bond fund, with Pounds 58.3m under management, has been excluded. Yields have dropped slightly but not significantly since we last published the table, on May 22.

Nick Henderson, head of fixed interest at Gartmore, expects the return from international bonds to be greater than for cash over the next year against a background of global growth and low inflation. He expects currency gains from an appreciation of the dollar and the yen against sterling and capital gains in continental Europe where interest rates, led by Germany, should continue their fall.

The fund's holding is 49 per cent in US dollar-denominated bonds, 16 per cent in Canadian bonds and 12 per cent in yen-denominated bonds. The rest is in France (2 per cent), Italy (3 per cent), Denmark (4 per cent), Spain (7 per cent) and the UK (7 per cent). Although this is a 'total returns' fund, the yield is lower than for most of the other funds, reflecting, according to Henderson, its current weighting to the US market.

Perpetual's Global bond fund, managed by George McNeil of Alpha, is also heavily invested in dollar-denominated bonds. The fund is top of the sector in terms of performance over one year and has a healthy yield. The currency breakdown is US dollar (40 per cent), Canadian dollar (10 per cent), gilts (17-18 per cent); the rest is in French, Spanish and Danish bonds, which are all hedged into sterling.

'Over the next nine months the dollar could rise to Dollars 1.80 or Dollars 1.85 against the D-mark. Sterling will perform less well against the dollar but will do well against everything else,' says mcNeill. He is eschewing the Japanese market, which formed part of the portfolio last year, because it now looks overvalued. The fund has a 5.25 per cent initial charge and a 1 per cent annual management fee with a minimum investment of Pounds 1,000. Charges on the Gartmore fund are 3.75 per cent initial, 0.75 management. Minimum lump sum investment is Pounds 1,000.

----------------------------------------------------------------------- LARGEST 10 INTERNATIONAL BOND FUNDS ----------------------------------------------------------------------- Fund Size (Pounds m) Yield**** (%) Perf* (%) ----------------------------------------------------------------------- Mercury Global Bond 246.4 5.26 20.6 Baring Global Bond 167.6 5.40 18.2 Perpetual Global Bond 69.2 6.43 25.1 City Fin Beckman Int 50.1 3.08 18.9 Fidelity Intl Bond 35.0 5.81 19.5 Norwich Intl Bond 27.6 5.10 24.9 Cannon Intl Curr Bond 25.7 5.13 22.9 Gartmore Global Bond 21.2 4.67 20.1 S&P Intl Bond 20.5 5.51 23.6 Guiness Flight EMU 19.7 8.91 6.8 Sector average 30.8 5.56 19.3 ----------------------------------------------------------------------- Source: Finstat **** As at June 22. *Offer-to-bid with net income reinvested over year to June 1. Funds without one year record are excluded. -----------------------------------------------------------------------

and from - boats have soared over the last few years.

Dennis Mossman, yacht manager of Navigators and General, a subsidiary of the Eagle Star insurance company, says that small speedboats are most at risk.

'Bigger boats that are taken are mostly found, but small speedboats you never find again. The theft rate for those is enormous,' he says.

Equipment left on board moored boats, even masts and winches, is another target for thieves. General Accident agrees about the scale of the problem. At least a third of its boat claims are now crime related, and the majority of claims over Pounds 10,000 are for theft. However, Mossman says the rise seems to have peaked.

Luckily for all amateur sailors, pleasure boat insurance is a highly competitive area, possibly because the recession has meant fewer new yachts being sold and needing insurance, and existing ones are kept out of use. So in spite of rising crime rates, premiums for most classes of boat have not risen in line.

Premiums are calculated using a combination of factors on an individual basis, with no standard table of rates.

'It's not like cars - there are thousands of different types of boats,' says Mossman. 'You can't just say, 'it's a Ford Escort'.'

On average, premiums work out at about 1 per cent of a boat's value - likely to be more for speedboats and less for sailing boats not used for racing. Larger boats, even if worth less, can cost more to repair because of the difficulty in getting them out of the water, so size can affect the amount you have to pay.

Where the boat is kept also makes a difference. If it is small and normally kept out of the water, there may be stringent security conditions requiring it to be kept under lock and with its trailer wheel-clamped. A boat in a marina may be cheaper to insure than one at an isolated river mooring, and inner city moorings may incur higher premiums.

'Where there are more boats there is usually better security,' says Dennis Mossman, but of course marina berths can be pricy.

Policies may also specify that if a boat is to be kept out during the winter, the mooring must be approved by the insurer.

The area where you intend to use your boat will also affect the premium. Cover is often restricted to inland waterways and UK coastal waters, but can usually be extended to Europe, the Mediterranean, the US east coast, or the Caribbean. Round-the-world yachtsmen may have difficulty getting insurance as standard policies from British insurers rarely stretch beyond the Atlantic, and an individual deal may be prohibitively costly.

Racing can be another pricy area, though small-scale family and club racing are not generally seen as too risky. Chris Day, managing director of Jardine Maritime, one of the specialist brokers for private yacht insurance, warns that for racing risks you will have to pay the first third of any claim, which can be expensive.

Christopher Knox-Johnston (brother of the famous yachtsman), of Haven Knox-Johnston, yacht insurers at Lloyd's, says that one of the biggest problems is people's ignorance of what to do in the event of an accident claim. The procedure differs from a motor insurance claim. There are no 'knock-for-knock' agreements among marine insurers.

Boat owners are responsible for making the boat safe, getting estimates, paying repair bills and claiming them back from the insurer.

They should also write to the other party involved in an accident to hold them liable. Knox-Johnston's advice is to contact the insurer as soon as possible after an accident or theft to check how to proceed.

The cover provided under most policies is based on the institute yacht clauses used at Lloyd's, which include named 'marine perils' such as breaking adrift, groundings and collisions, as well as fire and theft.

Since the clauses were rewritten in 1985, however, many insurers have developed their own wording, so cover may vary. Haven Knox-Johnston now offers an all-risks policy. It is important to look at the level of cover as well as the price when choosing a policy.

Wear and tear, design problems, mechanical failure and war damage are excluded by many policies. Theft of equipment and possessions may be covered only if there is forcible entry - if you leave a boat unattended and unlocked, even for a few minutes, you may unable to claim for anything stolen. The small print may specify security precautions needed, especially for high-risk items such as boats on trailers and outboard motors.

Other security measures, such as photographing the boat, recording serial numbers and marking all equipment, dinghies and so on with the boat's name and owner's postcode, are strongly recommended.

As the market for boat insurance is relatively small, there is a very limited number of providers, and perhaps a dozen specialist brokers. One of the big names is Navigators and General, which sells its policies mostly through brokers, and specialises in medium sized boats, over 16ft 6in, valued at up to Pounds 1.5m. The average value is Pounds 25,000.

Haven Knox-Johnston has a range of three plain English, all-risks boat policies, which are sold through ordinary insurance brokers who would otherwise not offer yacht cover. No-claims discounts of up to 20 per cent are also available.

Specialist brokers can also offer policies from European insurers, which usually provide similar cover, but not always - you should check the small print. Some may exclude third party liability, for example.

Members of the Royal Yachting Association are entitled to a 10 per cent discount on insurance bought through brokers Bishop Skinner, and holders of certain RYA qualifications can get further discounts.

General Accident is one of the general insurers which can provide yacht cover. It has two basic policies, one for small craft up to 16ft 6in, and one for larger yachts and motor boats. It offers no-claim bonuses of up to 25 per cent after five years.

OXBRIDGE colleges are the current theme of Business Expansion Scheme launches with Oxford dominating this week and Cambridge to come next week, writes Scheherazade Daneshkhu.

On Tuesday, Hodgson Martin launched The Residences at Oxford Companies to buy existing student accommodation from Exeter, St Edmund Hall, St Hugh's, St Peter's and Wadham colleges. The colleges are promising to buy back the accommodation after five years at 118p for every 100p invested. The returns equate to an annual return of 13.7 per cent compound for a higher rate taxpayer and 9.2 per cent for a basic rate taxpayer. The scheme is backed with gilts.

Oriel Cash Backed, sponsored by Downing Corporate Finance, is is a restructured version of Oriel residences, an early exit scheme which was caught out by the Budget changes. It is offering a contracted exit of 121p after five years for every 100p invested to buy residential property for the college. The returns to a higher rate taxpayer would be 14 per cent per annum, 9.6 per cent for lower rate, and are supported by cash deposits.

Best BES Advice comment on the schemes is positive. It says of Oriel Cash Backed, 'a combination of a high return and the cash backing arrangements with Oriel provide for an attractive investment.' It also recommends the The Residences at Oxford issue as 'a secure cash backed deal with a competitive return.'

Capital Ventures will announce a cash-back contracted exit scheme next week involving three Cambridge colleges - Churchill, Pembroke and Trinity Hall. It says it will repay 117p for every 100p invested.

PREMIUMS for household and motor insurance are to rise for the third straight year despite a fall in claims. Ian Rushton, outgoing chairman of the Association of British Insurers, this week blamed declining investment returns for the higher premiums which he said would be needed to reduce underwriting losses.

Provisional figures from the ABI showed insurance companies virtually broke even last year, with expenses and claims exceeding premium and investment income by only 0.2 per cent compared with 12 per cent in 1991. The improvement arose from reduced operating expenses, loss prevention initiatives, lower claims and rating increases.

Rushton, releasing the ABI's annual report, said motor claims had fallen, particularly for comprehensive policies, while there also had been a reduction in the rate of increase of motor crime. The companies' income from motor premiums rose by 12 per cent.

An increase in income from general insurance premiums helped to cut underwriting losses, along with falls in commercial theft claims (13 per cent), commercial fire claims (20 per cent) and subsidence claims (52 per cent). Domestic mortgage indemnity losses, at around Pounds 750m, were down by more than a third compared with 1991.

The report cited a number of initiatives which had helped to cut general insurance claims. These included an arson prevention campaign in association with the Home Office, and an anti-fraud drive aimed at preventing bogus claims. Rushton said: 'These are all beginning to bear fruit, with reduced claims in many of these areas. If this continues, we could see greater stability in premiums.'

The ABI is talking to police and the Department of Transport about raising fines on uninsured motorists. It says these are too low to discourage guilty drivers.

On the life and pensions side, companies reported record premiums last year, with total income from this source rising by 8.9 per cent to Pounds 43bn.

Explaining the need for higher household and car premiums, however, Rushton said: 'Results did improve last year but we still lost money.

'Significant rate increases have been introduced and their full effect will come through to companies over this year. Insurance companies have taken action to put the industry back on the right track, but we still have some way to go to return to full profitability.'

But unlike last year, when the ABI forecast rises across the board of 15-20 per cent, it refused to make predictions this time except to say that further increases were expected to vary widely and would depend on the position of individual companies.

Last month, the ABI estimated that home insurance premiums rose by an average of 20-25 per cent over the past year, but many readers have reported increases well above this.

Motor insurance premiums also have been rising, and the Consumers' Association advises people to shop around for quotations. It says that despite the ABI's words of warning there is nothing inevitable about increased premiums.

IF THERE is a dominant investment theme of the moment, it is the desire for investors to get a decent income.

Years of high inflation and high interest rates have led most investors to regard 'decent' as being more than 10 per cent.

The problem, with base rates at 6 per cent, is that it is hard to get a double digit income without taking some risks.

As we reported last Saturday, Fidelity, a leading fund management group, has written to the regulators expressing concern about a number of products which appear to offer a high level of income, but which may well just be paying back the investor's capital.

A classic example of this kind of product was launched this week by Life Association of Scotland, which is offering an income of 10.1 per cent (net of basic rate tax), paid quarterly for five years.

What is the snag? Like previous products from Acuma or Save & Prosper, LAS does not promise to return your original capital. It will only do so if the FT-SE 100 Index grows at 8.75 per cent per annum over the next five years.

It does guarantee that the total of your income payments, plus what is left after five years, will at least add up to your original investment. In other words, if you invest Pounds 10,000, you will get Pounds 4,870 in interest over five years, and if the FT-SE Index does not grow you will get Pounds 5,130 of capital back.

There are a couple of things to note here. The first is that the interest payment equates to Pounds 974 a year, not the Pounds 1,010 which one might naturally expect to get if offered 10.1 per cent on Pounds 10,000. This is because an income paid quarterly is deemed to 'compound up' at a higher rate than income paid annually.

Secondly, the guarantee offered is very similar to that available from other products, which promise stock market growth or your money back. The LAS product just parcels up the same return in a different way.

Investors should realise that if the guarantee comes into play after five years, they will have lost out. If they had kept the money in the building society, they would have earned interest on top of their original capital.

The product is really only a good deal if investors get their capital back as well as the interest payments. How likely is this? LAS calculated that, in all the five year periods, from 1984 to the present day (ie Jan 1, 1984 to Jan 1, 1989, Jan 2, 1984 to Jan 2, 1989 and so on), the average growth rate has been 9.59 per cent.

So a target of 8.75 per cent, it argues, is not too steep (as with many other products in this field, investors get no credit for the dividend yield on the index, but LAS's calculations allow for this).

But if the index rises by more than 8.75 per cent per year, investors will get no credit for the excess.

Provided investors understand all the nuances, this is not a bad product (higher rate taxpayers should note that the yield for them falls to 8.6 per cent). The concern is that people look at the income figure and do not bother to read the rest.

To avoid these problems, LAS says it asked Lautro, the life industry regulator, for an opinion on its promotional material. The brochure certainly does explain the risks; potential investors should make sure they read it in full.

Another very fashionable area of the moment is emerging markets, the stock markets of developing countries; we reported on the launch of a Govett investment trust last week.

Kleinwort Benson is also launching a trust in the area but it claims a more 'scientific' approach to emerging market investment. Asset allocation is more important than stock selection, says Kleinwort, since analysis shows that two-thirds of the movement of an individual stock price can be explained by the change in the general level of the emerging market.

Kleinwort also says that many of the current emerging market indices are too heavily weighted towards individual markets (particularly Mexico and Venezuela) and are thus very volatile.

It favours a more balanced index, where weightings are equally spread and regularly rebalanced to allow for market movements.

The new trust will follow a number of rules. It will never have more than 10 per cent in any one emerging market; if a market has risen by more than 50 per cent in the preceding year, the trust's maximum weighting will be 7.5 per cent; if a market has fallen by more than 50 per cent in the previous 12 months, the trust's minimum weighting will be 2.5 per cent.

Kleinwort says its disciplined approach has worked for its offshore Emerging Markets fund, which has risen 22.8 per cent since launch in February 1992, compared with a rise of 12.8 per cent in the IFC Composite index (the standard benchmark for emerging markets) over the same period.

The new trust will be launched on July 2. Shares will be offered at 100p each, with warrants attached on a one-for-five basis. The minimum investment will be Pounds 1,000.

AS A committed DIMI (do-it-myself investor) relying on my own research to manage a share portfolio, I have learned by painful experience that correct timing is as important as good stock selection for achieving profits. So, like thousands of small investors weighing the merits of the BT3 share issue, I ask myself if this is the right time to put money into BT.

I use a mnemonic, 'gains are fast,' to search for small capitalisation growth stocks with big prospects. It also proved appropriate for Glaxo, the giant pharmaceutical company, during its outperformance from September 1990 to spring 1992.

Many press reports are covering the fundamental aspects of BT but 'gains are fast' incorporates a belt and braces approach, considering both fundamental and technical data. So, how does BT measure up to my criteria?

G - growth in earnings per share (EPS) should at least have doubled over the past five years. Astonishingly, for such a huge organisation, BT's EPS more than doubled (from 15.1p to 34p) between 1985 and 1991. Since then, recession and redundancy costs have marred this record, resulting in an EPS for 1992 of only 19.8p.

A - annual earnings per share growth should exceed 20 per cent. This year, a profits rebound of more than 46 per cent is forecast widely; accordingly, EPS should recover by more than 20 per cent.

I - institutional support helps to improve trading liquidity. The strenuous efforts of lead broker SG Warburg to encourage massive institutional support have been reported widely. This could keep the share price high before the issue is launched - excellent news for hard-pressed UK taxpayers but less promising for small investors.

N - new products or management, or a new high in the share price, or niche markets which confer strong growth advantages. BT's early monopoly position enhanced shareholders' returns, but more competition and closer regulation might prevent a repeat performance.

S - supply/demand for the shares. Small capitalisation plus demand encourages a rising share price. For BT, the UK's largest quoted company with a capitalisation of more than Pounds 25bn, the supply/demand balance depends crucially on growth prospects.

As a major force in the rapidly expanding global telecommunications industry, BT could become a highly attractive investment because it has long-term appeal for two different types of investor: income-seekers and growth-seekers. This decade, BT could be a rare but profitable hybrid - a 'growth utility' generating healthy capital gains with steadily rising dividends. Since 1985, gross dividends have more than doubled. A growth utility is surely the ideal Pep investment.

A - ambitious owner/managers are eager for success. Chairman Iain Vallance wants BT to become a global operator, but early attempts were unsuccessful and the 20 per cent stake in MCI is too recent a development to be judged.

R - rich in cash companies have no debt. BT is in one of the most cash-generating businesses, with a miniscule 14 per cent of debt.

E - efficient management builds leading, not lagging, companies. Efficiency is revealed by savage cost-cutting, vast improvements to customer services, and that astonishing triumph of modern technology - vandal-proof public 'phone booths.

F - fundamental facts inform on the present and prospective share price. Forecast profits for 1994 imply earnings per share of about 32p. A price of Pounds 4.30 produces a forward price/earnings ratio of 13.4. This compares with BT's historic p/e of 21, 23 for Cable and Wireless, and 19.6 for Vodaphone.

P/e ratios of around 20 suggest the market rates telephone network companies as growth stocks. If the forward p/e for BT reaches 15 by December 1993, the BT share price would rise to Pounds 4.80; by July 1994, a forward p/e of 20 could lift the price to Pounds 6.40.

A - act if growth falters. I bale out rapidly on profit warnings, setbacks, or if a chart falls below its uptrend.

S - stock market direction. Few shares prosper in falling markets, but the performance of different sectors since the start of 1993 might give clues on BT's position as that rare investment entity, a growth utility.

Since December 31 1992, the highest sectors - gold, aerospace engineering and property - have all been classic late cyclical sectors. Meanwhile, traditional growth sectors languish at the foot of the performance tables: food retailing, brewing and distillers, and health and household. Telephone networks show a modest rise. The fact that late cyclical sectors are star 1993 performers suggests we could be nearing the peak of a mature bull market, which is already discounting recovery in the real economy. An investment in BT now could prove timely, as utilities are hot favourites with institutional investors when other sectors look stale or fully valued.

T - technical analysis. What does the share price chart imply? I find charts give good guidance on buying and selling decisions, and in assessing the potential for a share price rise. It is impossible to show them in sufficient detail here, but my reading of them suggests that a year-end target price of Pounds 4.80 looks feasible and a target price for mid-1994 of Pounds 5.50 on the fully-paid shares looks possible. To reach Pounds 6.40, though, the price would have to break out of present trends.

EPS has fallen over the past five years. But, if both technical and fundamental projections hold, then the prospective capital gain, plus the predicted 13.3 per cent gross dividend yield for this coming year, suggest BT is a good Pep investment proposition now.

SHARE OPTION schemes can be disrupted when companies are restructured - as 18,300 employees belonging to ICI's save-as-you-earn/share-save schemes, and more than 10,000 holders of its personal equity plans, have just discovered.

With the former, employees agree to save between Pounds 10 and Pounds 250 a month for at least five years. The idea was for the accumulated money, plus a tax-free bonus, to be used to buy shares in the company at an option price fixed when the savings term began. (Some schemes run on for a further two years, doubling the five-year tax-free bonus).

In the 13 years since the schemes were launched, the Treasury and the Inland Revenue have approved various ways of handling the aftermath of mergers and takeovers - including early exercise of options and transfers from one company's scheme to another's - mostly without penalising savers.

But the authorities have taken a tougher line with demergers - which were, apparently, not foreseen by legislators early in the 1980s.

Demerging firms forfeit the privileged tax treatment of share-save schemes if they adjust the prices of options granted already to reflect the lower value of shares brought about by a demerger, or allow savers to exercise their options ahead of the restructuring.

ICI decided to allow holders of options on 3.4m shares priced at Pounds 8.14, Pounds 8.91 and Pounds 9.66 to exercise their options in time to receive a Zeneca demerger share and a Zeneca rights share (nil paid).

Holders of options priced at Pounds 11.83, Pounds 12.26 and Pounds 13.81, covering 3.9m company shares, were offered cash instead because exercising the options would have meant paying more than the market value.

These amendments to the scheme made the savers liable for income tax on their options or the cash alternative, but ICI paid compensation for the extra tax due.

Luckily for the employees, the company was following the example of Racal in the 1991 Vodafone demerger. Employees of BAT in the 1990 split, involving Argos and Wiggins Teape Appleton, lost out on the price reduction resulting from the demergers and faced extra tax without help from the group.

Most of the 10,000-plus investors who held ICI shares through the single-company or general Peps run by the Bradford and Bingley building society have chosen to sit out the demerger so far, according to Sean Warters of the society's Pep department.

This is partly because of the society's insistence that the terms and conditions of the Peps require investment in ICI, not Zeneca.

So, although Pep-holders can keep the Zeneca shares they have received within the ICI plans, the society is selling off the Zeneca rights to re-invest in ICI, and will also use any dividends received from either company to buy more ICI shares.

Investors who want to convert an ICI single-company Pep into a Zeneca single-company Pep, or switch a general Pep from ICI to Zeneca, will have to change plan managers, paying an exit fee of 0.5 per cent of the plan value to the society and, probably, setting-up charges to the new manager as well.

Switching out of Zeneca is simpler. Pep-holders have until September 30 to make a written request for a sale of Zeneca shares held for re-investment in ICI.

The Bradford and Bingley will be charging Pounds 15 plus VAT on top of dealing commission and stamp duty on these switches.

DETAILS are still coming in of special offers on dealing commissions for BT3 shares after the sell-off next month, writes Bethan Hutton. Some of the offers will also apply to shares in other companies, as banks and stockbrokers attempt to win new clients for their services.

The Share Centre (0442-890 800) will buy or sell up to Pounds 1,000 worth of BT3 shares for a minimum commission of Pounds 10. For amounts up to Pounds 2,000, the commission is 1 per cent, and 0.8 per cent for Pounds 2,000-Pounds 5,000. For tone 'phone deals, the commission is reduced by 20 per cent. The offer also applies to other popular shares, including Northern Ireland Electricity. On postal sales it offers a family package, with a charge of Pounds 2.50 for each additional transfer of the same type of share.

Midland bank branches will charge half their usual commission on purchases of all UK quoted shares between July 19 and October 1. The minimum will be Pounds 10 for deals up to Pounds 1,333; after that, commission will be 0.75 per cent, with a maximum of Pounds 75. Sales of BT shares will attract the same rates. Up to four BT certificates bearing the same surname and address can be sold as a single deal.

At Sharelink (021-200 2474), commission starts at 1 per cent (minimum Pounds 7.50) for buying through its new AutoDeal 24-hour telephone push-button system. Selling through AutoDeal costs 1 per cent (minimum Pounds 12.50). Commission on ordinary telephone dealing in BT shares will be 1.5 per cent for the first Pounds 2,500 (minimum Pounds 15). Family groups will be charged an extra Pounds 2.50 a member for dealing in BT shares. Transfer of BT shares to a Sharelink Premier Pep is free.

For BT3 applicants, the Leeds building society is waiving the normal Pounds 10 fee for membership of its share-dealing service until September 3. Commission rates for telephone dealing are as normal: 1.25 per cent (minimum Pounds 18) for deals up to Pounds 3,000. Selling by post costs Pounds 9.95 for transactions up to Pounds 2,500, and 0.75 per cent for larger amounts.

The government this week reminded investors that making multiple applications for BT3 shares was a criminal offence, and appointed Price Waterhouse as fraud auditor. You can register for the offer at any number of share shops, but only one application for the public offer may be made by each individual. You can apply for both the public offer and the retail tender.

BUPA is to cut premiums on some of its medical insurance schemes and freeze others, but subscribers to the main BUPACare scheme aged over 60 will face premium increases of up to 12 per cent.

Rates will be cut by 10 per cent for the low-cost schemes Healthchoice, which covers private treatment if the NHS waiting list is more than six weeks, and Essentialcare, which has exclusions such as outpatient consultations. Premiums will be frozen for the LocalCare scheme, where treatment is restricted to one local hospital, and for Healthcash, which pays cash for in-patient stays, pregnancy and so on.

However, rates for BUPACare, the full medical insurance scheme used by 95 per cent of customers, will increase. Premiums for subscribers under 44 will go up by less than 5 per cent and for those aged 45-59 by about 5 or 6 per cent, but older customers will pay for the fact that the usage of policies by their age group has increased significantly. Rates will increase by 12 per cent for customers aged 60-64; those over 65 face rises of between 10.5 and 11.5 per cent.

BUPA reviews its premiums twice a year. The new rates will apply to customers renewing a policy in the six months from July. In 1991-92, rate rises averaged 25 per cent. The figure for 1993 is less than 14 per cent. Arthur Large, managing director of BUPA membership, said the slow-down in price increases was the result of cost containment.

NORMAN LAMONT, the former chancellor, dropped a small bombshell in this year's Budget when he froze the earnings ceiling at Pounds 75,000 instead of increasing it in line with the Retail Price Index.

This ceiling, known as the 'cap', means that only the first Pounds 75,000 of an executive's earnings can be taken into account in arranging pension benefits in an approved scheme (one which qualifies for full tax relief).

So his action in freezing the cap points to the need for executives to look at other methods of boosting their benefits at retirement in respect of their earnings above Pounds 75,000.

There are two courses available for executives - make additional pension provision on a less tax efficient basis and/or make use of other tax efficient savings vehicles to provide benefits at retirement.

Pension consultants have been devising schemes to provide additional benefits every since the cap was introduced in April 1989. Basically, there are two alternative routes that can be taken.

First, the benefits can be unfunded, that is the employer promises to pay the benefits to the executive when he or she retires. Benefit entitlement can be built up in the normal manner while the executive is still working for the company and can be written into employment contracts. But effectively, the executive is paid out of company profits at the time of retirement.

An unfunded arrangement does not involve the employee in any tax liability until the benefits are paid, when they are taxed - both income and cash sums - at the executive's top rate.

But there is no security in such arrangements. The executive is relying on the company honouring the commitment at the time of retirement - there could be problems if the company is under financial strain at the time or if ownership has changed.

An unfunded arrangement is useful if the executive's earnings are not much above the cap. When earnings greatly exceed the cap, executives want and need the security provided by a funded arrangement, with the company paying contributions in advance to provide the additional benefits - the Funded Unapproved Retirement Benefit Scheme, known as Furbs.

There are different versions of Furbs, but all aim to mitigate the tax disadvantages of an unapproved scheme - tax on the contributions, the underlying funds being taxed and the benefits being taxed.

Under a Furbs, the employer's contributions are treated as a benefit in kind to the executive and the executive is taxed accordingly. There is no way to avoid this charge. Paid Furbs contributions do not give rise to an additional National Insurance contribution charge on the employer.

If the Furbs is invested in the UK, then the underlying funds/securities will be taxed accordingly. However, if the Furbs is set up offshore, then the funds can roll up on a gross basis.

However, this benefit is mitigated through the fund having to pay withholding taxes on overseas equity dividends - a tax that UK gross funds can avoid and charges are far higher than for onshore exempt funds.

It is understood that the Inland Revenue is uneasy over offshore funds for UK pension provision. This unease could be translated into legislation against such funds.

Finally, with a Furbs, lump sum payments are tax free, but income payments are taxable. Hence, executives would take the accumulated benefits on a Furbs as cash and make their own arrangements about converting that capital into income.

Executives seeking to get their company to arrange a Furbs should check on the tax position and the charges being levied. It should be arranged through an experienced consultant or adviser. Where possible, the executive should ensure that any tax/NI contribution claims have been confirmed in writing by the Inland Revenue and the Department of Social Security.

As stated, the cap's introduction has focused attention on other methods of boosting benefits at retirement.

A personal equity plan is the first method to be considered. It is flexible and tax efficient, except that contributions do not attract tax relief.

Share option and share incentive schemes are both useful vehicles enabling executives to accumulate substantial cash sums on a flexible, tax efficient basis in the form of ordinary shares of the company.

However, share option and share incentive schemes are only available to those executives working for companies whose shares are quoted. And they rely on steady growth in the share price and the dividend payouts.

Little has been done, however, to help the self-employed make contributions towards their pension on earnings above the cap, without suffering the full tax impact.

RESIDENTIAL telephone users across much of the UK will soon be able to access the Mercury network without buying new phones, under Mercury's new '132' service.

Called 'easy access', users connected to the service will simply have to prefix the number they wish to dial with '132' to route their call via Mercury. The service is already available for London customers connected to digital exchanges - about half of all users in the capital. Users in Birmingham, Nottingham, Glasgow, Edinburgh, Oxford, and 17 other towns and cities are also eligible as of now.

The annual connection fee is Pounds 10 (plus VAT). It takes about two days to join; there is no need to adjust your existing phone(s).

As yet Mercury has barely publicised '132'. An advertising blitz is scheduled for the autumn, by when just under half of existing BT residential customers will be able to switch to Mercury via '132'.

Many long-distance and international calls are cheaper with Mercury, though users should also watch out for BT special offers. A '132' connection does not involve severing your existing BT link; indeed all calls not prefaced by '132' will automatically be routed via BT.

Mercury's existing blue-button '131' service will run in parallel with '132' and remain the only means of access for those not connected to digital exchanges. However, from the end of the year manufacturers intend to start marketing blue-button '132' phones, which will route '132' calls via Mercury at the touch of one, instead of three, buttons.

Mercury Helpdesk, 0500 500 194.

MOST OF the attention on GEC's results on Wednesday will centre on how generous the lumbering giant will be with the dividend. The City was disappointed with the cautious 5 per cent rise at the half way stage; optimists are looking for a 7 per cent advance in the second half of the year.

Taxable profits are expected to be around the Pounds 860m mark for the year to March and the cash mountain is expected to measure up at around Pounds 2bn, just over Pounds 1bn from the company itself and the remainder from joint ventures.

Most of GEC's main lines - telecommunications, power systems and medical systems are performing well. GEC may have had its share of criticism in the 1980s but analysts now take the view that its sober practices give it the feel of a company for the 1990s.

ASDA, the UK grocery retailing chain, is expected to announce on Friday an improved full-year profit of between Pounds 135m and Pounds 142m.

That would be a significant increase on last year's Pounds 86.8m before exceptional write-offs of Pounds 451.6m, and in excess of the company's own forecast of Pounds 130m given in January when it launched a Pounds 347m rights issue to accelerate its recovery programme.

Analysts believe chief executive Archie Norman's strategy of a return to keener pricing and the 'Asda price' promise, and a shake-up of merchandising, buying and marketing, is bearing fruit.

They also believe Asda has continued to see like-for-like sales running about 2 per cent ahead of the last financial year.

A final dividend of 1.1p is forecast, giving a total of 1.6p, down from 2.1p last year.

Airtours, the holiday company, announces half-year results on Monday, June 28, with losses before exceptionals expected to be Pounds 7.5m, compared with Pounds 5.6m last time. Holiday companies usually make a first-half loss as they are already paying some of their summer season costs. A further exceptional loss of Pounds 9.5m is likely, resulting from the failed bid for Owners Abroad earlier this year.

Pre-tax profits of BPB Industries, Europe's biggest plasterboard producer, are forecast to have risen to between Pounds 48 and Pounds 55m for the 12 months to the end of March when the group publishes its annual results on Thursday.

FOR MUCH of the last decade, a good stock market adage was 'keep taking the tablets.' Buying shares in pharmaceutical companies was what the Americans call a no-brainer: a decision requiring little thought.

The rationale was that ageing populations in the West and increasingly sophisticated medical techniques were leading to ever-rising healthcare costs. The scale of research and development needed to produce new drugs prevented companies from entering the market and led to high margins for those that remained. As recently as 1991, Wellcome and Glaxo were the best performing shares in the FT-SE 100 Index.

But in the first half of 1993, the no-brainers turned into no-gainers. Glaxo and Wellcome were the worst performing FT-SE shares and other drugs related stocks, such as Boots and Smithkline Beecham, also feature in the laggards list.

The primary reason for the fall is the Clinton administration's plans to reform the US healthcare system, which has hit pharmaceutical companies on both sides of the Atlantic. Add some company-specific problems - worries about Wellcome's anti-Aids drug, the departure of Glaxo's chief executive - and you have the scope for a share price decline.

A more fundamental factor also came into play. As the UK economy recovers, investors start to desert the solid, dependable stocks that saw them through the recession and start to move into 'cyclical' shares. Profits of such companies were battered by the recession and investors reason that the rebound will therefore be all the sharper.

Many of the best performing FT-SE shares of the first half fall into the 'recovery' category. British Aerospace may have announced a Pounds 1.2bn loss, but it paid a larger than expected dividend and showed signs of rebounding from the disasters of last year, when its share price (now around Pounds 4) touched 107p. It rejoined the FT-SE 100 index at the start of June.

British Steel was due for a revival, having been one of the 10 worst performing Footsie stocks in both 1991 and 1992. The first half share price surge came in spite of the announcement of a Pounds 149m loss for the year ended April 3, the company's worst result since privatisation in 1988.

The devaluation of the pound has improved the company's outlook, as has its ability to announce, and maintain, price rises. But the shares, sought after at privatisation for their dividend-paying ability, now yield just 1.2 per cent.

Asda is another stock on the rebound. It performed so badly in 1991 that it was dropped from the FT-SE 100 index, but last year its shares rose 50 per cent and it has climbed back in. The supermarket group managed to be one of the best performing shares of the first half in spite of a Pounds 347m rights issue in January.

Smaller rather than larger companies have provided the best returns in the first half. The FT-SE 100 index is up just 1.7 per cent over the period to June 25; the All-Share has done little better, with a rise of 4.7 per cent. The recently created FT Small Cap index, covering the smallest 450 stocks in the All-Share, jumped a more than healthy 20.7 per cent.

Small company shares had underperformed for four consecutive years between 1989 and 1992 - their worst recorded run. The very factors that hurt them during the recession - their exposure to the UK economy, the lack of liquidity in the shares - are helping them in brighter economic times.

The tables show the best and worst performing stocks in the All-Share as well as in the FT-SE 100 index. As with their larger brethren, many of these are 'recovery' stocks.

Often, however, long-term shareholders may not have had that much cause for cheer. Some of the companies merely regained ground lost in 1992.

Take the best performing stock, Baltic, a small leasing group, which saw its share price rise from 26p on January 1 to 89p on Thursday night. This sounds like good news for its shareholders until you realise that the price plummeted last year from 123p to 24p in the space of seven months after fears of bad debt provisions when it withdrew from construction equipment leasing and aircraft financing.

By contrast, Danka business systems, the US-based office equipment supplier, has seen rapid growth this year after a series of acquisitions. Pre-tax profits were up by 63 per cent in the year to March 31 due to pent-up demand for office equipment and the restructuring of many of its businesses.

Smith New Court, one of London's leading marketmakers, which this week reported pre-tax profits up up 110 per cent on last year, has seen its share price more than double in the first half of the year on the back of increased turnover in the markets. The profits ensured a warm welcome for its Pounds 41.2m rights issue on Thursday, with the share price rising 35p to close at 285p at the end of the day.

A sudden spate of buying in Ratners, the heavily indebted jewellery group, since April has led to a steep increase in the share price but analysts have found it difficult to explain why the shares have become so popular.

There is less mystery behind the woes of Hartstone, the hosiery and leather goods company, which saw its share price slide this year from 272p on February 22 to 34p at Thursday's close. The company has been hit by the deepening recession in Europe.

Other consumer goods companies to have done badly included Spring Ram, the Yorkshire manufacturer of kitchens, bathrooms and home improvement products. In March it announced a fall in last year's pre-tax profits to Pounds 26.2m, well below expectations of Pounds 39m. The fall was attributed to difficult trading conditions and the same factor was blamed by Campari, the sporting leisure wear group, which in May made its second profits warning in less than two months, and by Jeyes, the cleaning products group. Its profits warning earlier this month caused the share price to fall 122p in one day to 317p and it now languishes at 283p.

Two companies in the engineering sector have suffered. BM group's troubles began last summer when its share price collapsed after loss of confidence following the resignation of Roger Shute, its founding chairman. It has been involved in refinancing talks with its bankers after mounting debts and losses.

Simon Engineering also had a bad year in 1992 and its problems have continued. In March, the company announced that pre-tax profits fell from Pounds 18.3m to Pounds 5.32m in the year to December, mainly due to the recession and losses on a paper engineering contract. A profits warning in May triggered further falls.

Where will the winners come in the second half? Michael Beggs, who manages a recovery fund for Guinness Flight, argues that the first phase is over - a fair amount of recovery is built into share prices and one can no longer pick up stocks at bargain valuations. The next phase is to identify the companies which have done the hard work of reorganisation and restructuring and which will benefit from the economic recovery.

-------------------------------------------------- TOP PERFORMING FT-SE 100 STOCKS JAN-JUNE -------------------------------------------------- Company % gain -------------------------------------------------- British Aerospace 141.8 British Steel 71.3 Asda 41.7 Royal Bank of Scot 39.3 Standard Chartered 36.8 Powergen 34.2 HSBC 32.8 RMC 31.9 S G Warburg 31.3 Land Securities 30.8 -------------------------------------------------- Source: Datastream. -------------------------------------------------- WORST PERFORMING FT-SE 100 STOCKS -------------------------------------------------- Company % fall -------------------------------------------------- Wellcome -29.3 Glaxo -27.7 Bass -22.4 Boots -20.8 Allied-Lyons -16.1 Argyll -15.1 Reckitt & Colman -13.8 Smithkline Beecham -13.5 BAT -12.9 Smith & Nephew -12.3 -------------------------------------------------- Source: Datastream.

-------------------------------------------------- BEST PERFORMING ALL-SHARE STOCKS -------------------------------------------------- Company % gain -------------------------------------------------- Baltic 242.3 Danka Business Systems 172.3 ASW Holdings 154.9 Ratners 152.9 Smith New Court 147.8 British Aerospace 141.8 WPP 114.3 Wace 108.1 Scottish Met Property 105.6 Hall Engineering 100.0 -------------------------------------------------- Source: Datastream. -------------------------------------------------- WORST PERFORMING ALL-SHARE STOCKS -------------------------------------------------- Company % fall -------------------------------------------------- Hartstone -84.3 BM -71.2 Simon Engineering -63.5 Spring Ram -57.1 Campari -53.7 Dalepak -44.9 Herring Baker Harris -44.5 Sims Food -44.0 Anglo United -43.3 Jeyes -39.8 -------------------------------------------------- Source: Datastream. --------------------------------------------------

SELECTING THE right equity fund from the myriad options available is a tricky process. However hard you scrutinise the past performance, there is no guarantee that funds at the top of the charts will continue to do well.

The sad fact is that the majority of funds fail to outperform the market index. The odds are thus stacked against you and in favour of underperformance.

Hence the emergence of index-tracking funds. These do not attempt to select shares by the old analytical standbys. They simply try to match the index's performance, normally by selecting stocks which have tracked it in the past.

Once set up, the costs of running an indexed fund ought to be lower than on a conventional fund. Even so, there are inevitably some costs and these prevent the funds from exactly matching the index's performance. Nevertheless, the UK funds have performed well and in general have above average performances for their sectors. The overseas tracking funds have not done so well, particularly in Japan.

Conventional fund managers argue that they can still beat the index, and it may well be that if the market moves sideways for the next year or so, the emphasis will be on stock picking. Small companies may well be set to outperform over the next year or so, which may help active managers.

Nevertheless, indexed funds may well be a good core holding for first-time investors over the longer term. Here follows details of the main unit trusts in the area; there is also a small number of tracker investment trusts - Venturi, Malvern and two Hoare Govett small company funds.

(All figures are from Finstat and cover the longest period available to June 1. Growth is offer-to-bid with income reinvested, except where stated. Details are also given of the minimum investment, charges and sector position.)

UK: Gartmore's UK Index fund follows the All-Share. It has grown 29.9 per cent over three years, placing it 9th out of 95 funds. Minimum Pounds 5,000; charges nil initially, 0.5 per cent annually.

Govett has a large number of futures and options funds, including ones based on the FT-SE 100 and others tracking European and US Indices. It also has a conventional unit trust based on the new FT Mid-250 Index. This is up 40.5 pc (offer-to-offer) over nine months, placing it 9th out of 106 funds over that period. Minimum investment is Pounds 3,000; charges are nil initially and 1 pc annual.

James Capel's UK Index fund follows the All-Share. It has grown 26.5 pc over three years, placing it 21st out of 95 funds. Minimum Pounds 1,000; charges are 5.25 pc initial and 0.5 pc annual. Capel also has a Footsie fund which tracks the FT-SE 100 index. It is up 4 pc (offer-to-offer) in six months, putting it 104th out of 108. Minimum Pounds 1,000; charges 4.175 pc initial and 1 pc annual.

The Trixie fund also from James Capel, covers companies in the smallest 12 pc of the All-Share. It has risen 0.7 pc over a year, placing it 53rd out of 67 funds in the smaller companies sector. Minimum Pounds 1,000; charges 5.25 pc initial, 1 pc annual.

The Midland FT-SE 100 fund is up 1.1 pc (offer-to-offer) over 3 months placing it 88th out of 110. Minimum Pounds 1,000; charges 6 pc initial, 1.5 pc annual.

The Morgan Grenfell UK Equity index tracker follows the All-share. It has grown 24.8 pc over three years, placing it 33rd out of 95. Minimum Pounds 1,000; charges 5 pc initial and 0.75 pc annual. Norwich UK Index Tracking follows the All-Share and has grown 26.7 pc over three years, placing it 20th out of 95. Minimum Pounds 5,000; charges 6 pc initial, 0.2 pc annual.

Providence Capitol All-Share Mirror has grown 3.8 pc over a year, placing it 40th out of 104 funds over that period. Minimum Pounds 500; charges 2.04 pc initial and 0.5 pc annual. Royal Life's UK Index Tracking Trust follows the All-Share. The fund has risen 26.3 pc over three years, placing it 23rd out of 95 funds. Minimum is a hefty Pounds 25,000; charges 5.25 pc initial and 0.3 pc annual.

Swiss Life's UK Index Tracker fund follows the All-Share. It has risen 31.3 pc over three years, placing it sixth out of 95 funds. Minimum is 500 units (currently around Pounds 600-Pounds 700); charges 6 pc initial and 0.5 pc annual.

US: James Capel's American Index Fund follows the S&P 500. The fund has grown 30.5 pc over three years, placing it 74th out of 113 funds over that period. Minimum Pounds 1,000; charges 5.25 pc initial and 1 pc annual.

Legal & General's US index fund follows the FT-A World Index (US). It has risen 1 pc (offer-to-offer) over the six months to June 1, placing it 96th out of 127 funds. Minimum Pounds 1,000; charges 5 pc initial, 0.75 pc annual.

The Morgan Grenfell US Equity Index Tracker follows the S&P 500. It has grown 32.6 pc over the three years to June 1, placing it 67th out of 113 funds. Minimum Pounds 1,000; charges 5 pc initial and 0.75 pc annual.

Japan: All the trusts in this market follow the FT-A World Japan index. James Capel's Japan Index has risen 1.6 pc over the three years to June 1, placing it 50th out of 78 funds. Minimum Pounds 1,000; charges 5.25 pc initial and 0.5 pc annual.

Legal & General's Japan index tracker trust is up 1.5 per cent over three years, and is 51st out of 78. Minimum Pounds 1,000; charges 5 pc initial, 0.75 pc annual. Morgan Grenfell's Japan Tracker trust has fallen 2.7 pc over three years and is 60th out of 78. Minimum Pounds 1,000; charges 5 pc initial and 0.75 pc annual.

Smaller company shares continued their gradual upward trend this week. The Hoare Govett Smaller Companies Index (capital gains version) climbed 0.3 per cent from 1461.03 to 1466.13 in the seven days to June 24.

Income distributions from income unit trusts have tended to be lower in the first half of this year, according to Income Fund Analysis. Of 119 funds which have paid at least one half yearly or two quarterly income distributions in 1993 so far, 68 paid less than the same time last year, 14 were unchanged, and 37 made higher payments.

Of 79 distributions paid in April, May and June this year, 41 were down on the equivalent payment last year, nine were unchanged, and 29 were up. Four long-running funds monitored by IFA have already secured their unbroken records of increasing income every year since 1981: Prolific High Income, Kleinwort Benson High Yield, Barclays Unicorn Income, and Allied Dunbar Equity Income. Four others have so far held steady, and may increase in the second half of 1993: Henderson Income & Growth, M&G High Income, Sun Life Distribution, and James Capel Income Fund. (Further details from IFA on 0492 875410).

American Express will be introducing an anti-fraud precaution on its credit cards later this year aimed at preventing the use of cards which are intercepted in the post.

When the owner of an Amex card receives it, they will have to telephone an 0800 number within 20 days and answer a number of security questions to verify their identity. The card can then be used. If the card is used before the owner has received it and done the security check, the fraudster will be called to the telephone to answer a series of identification questions.

Edinburgh-based fund manager Martin Currie is to link up with Indbank, an Indian merchant bank, to launch and manage jointly an offshore, open-ended fund invested in Indian securities.

The Indian Opportunities Fund will be launched in July, aimed principally at institutional investors in the UK and overseas, with the aim of long-term capital growth. The fund will be incorporated in Bermuda, and the intention is to be listed on the Irish stock exchange. The minimum investment will be Dollars 10,000 (Pounds 6,700). The initial charge during the three week offer period will be 3.5 per cent rising to 5 per cent afterwards, with annual fees of 1.8 per cent. Shares will not be redeemable in three months after the offer closes, and new shares will not be issued for six months.

Unit trusts continued to attract investors in May, as funds under management rose for the fourth month running to reach another record high of Pounds 73.8bn, up 22 per cent on May 1992. There were 4.59m account holders, up 4 per cent on the year. Total net sales in May were Pounds 914m, up almost 300 per cent on May last year.

Interest in UK equity unit trusts by private investors has shown a particularly dramatic increase this year, according to figures from the Association of Unit Trusts and Investment Funds. Retail sales - made directly to private investors or through intermediaries - of unit trusts invested in UK equities were Pounds 1,211m in the first five months of this year, compared with Pounds 140.7m in the same period of 1992.

although the UK industrial group needed more than one bound to achieve independence from Anglo American Corporation, the South African mining group.

Charter took the biggest step in February by selling its 38 per cent holding in Johnson Matthey, the world's biggest platinum marketing group, which is part of the Anglo American 'family' of companies.

Jeff Herbert, Charter's chief executive, completed the process this week by announcing plans to buy out the 36 per cent stake in his company held by Minorco, Anglo American's Luxembourg-based investment company.

After receiving Pounds 342m for the Johnson Matthey stake and paying Minorco Pounds 236m for its own shares, Charter will be left with about Pounds 200m in net cash, borrowing facilities of Pounds 300m and the ability to issue its own paper. What will the group do with its new-found freedom, apart from dropping the 'Consolidated' from Charter's title?

Herbert is keen to build by acquisition. He says there could be 'one big hit' in the Pounds 500m range, but it seems much more likely that the group will make a series of smaller purchases in areas close to its present businesses.

Charter's existing operations - rail and mining equipment; building products; quarrying and mining - reported an 11 per cent increase in operating profits in what the group described as 'a very difficult year when many of our competitors struggled to stand still.'

In spite of the depressed trading conditions Herbert is confident there are good buying opportunities 'partly because of how we run our businesses, partly because some sectors are now moving ahead.'

The group will favour UK-based companies with an international spread of businesses. As a former director of GEC and Jaguar Rover Triumph, Herbert admits: 'My natural background is making things.'

Charter would like to increase its exposure to Continental Europe, which currently accounts for only 15 per cent of group sales, and is also interested in the opportunities offered by the Far East and Eastern Europe.

However, the group has little track record in making acquisitions and is thought in the City to have overpaid for its last big deal, by spending Pounds 54m for the Hargreaves quarries operations in 1989.

Herbert remains confident of being able to make earnings-enhancing acquisitions, even although the market as a whole is on a high rating: 'Some prices are still unrealistic, but pain does tell. There are people out there who are really hurting.'

It should be relatively easy for Charter to buy companies which offer a better return than cash in the bank, thus increasing group earnings. But unless a rising share price maintains Charter's rating, it will subsequently become more difficult for the group to issue paper without diluting earnings.

It is not easy to arrive at a fundamental valuation of the new-look Charter. Its shares are currently trading on a multiple of 17.5, a 20 per cent premium to the market that reflects the amount of cash in the group. But analysts estimate that the group's underlying business should probably be on a prospective multiple of about 12.5, a 14 per cent discount.

Just how the shares perform is therefore likely to depend on both the speed and success of Charter's acquisition plans. The shares rose from 634p to 648p when the deal was announced on Wednesday, but fell back a little to close the week at 639p.

Analysts feel the existing operations are unlikely to sparkle, although the Cape building materials business did well to increase operating profits by 5 per cent and has considerable recovery potential.

Investing in the shares really comes down to backing the judgment of Herbert and his team. They are acknowledged as good managers and have some solid businesses, such as the Anderson mining equipment operation. Charter looks an interesting long-term bet for those attracted to less glamorous industrial stocks.

THE STOCK markets are approaching the second quarter reporting season with trepidation.

This might seem odd, since most economists on Wall Street agree that economic growth between April and June will prove to have been healthier than during the previous three months, when gross domestic product grew by a miserly 0.7 per cent.

Yet, if recent profits warnings are to be believed, the (admittedly modest) improvement in underlying economic conditions during the second quarter will not have translated into a widespread improvement in corporate profitability.

Over the past two weeks companies representing a broad cross-section of business have announced that their second quarter profits will not match market expectations. Among the bigger names warning of poor earnings were Kmart, Nike, Reebok, American Airlines, USAir, Minnesota Mining & Manufacturing, Apple Computer and Chemical Waste Management.

Investors are so jittery about corporate earnings that even companies whose earnings are holding up have suffered at the hands of the edgy markets. This week Caterpillar stock dived briefly on reports that the company had indicated its overseas sales were weak. Caterpillar denied the reports. Earlier, similar rumours struck Hewlett-Packard shares, even though the computer group insisted it remained upbeat about its prospects.

While there has been a smattering of positive corporate news lately - Goodyear Tire & Rubber predicted on Thursday that its second quarter income would be better than analysts' forecasts - there has not been enough to rid the markets' nagging concerns that the coming reporting season will prove a disappointment.

Recent economic reports have been equally discouraging. This week saw a big drop in May durable goods orders, unexpected weakness in mid-June car sales, the downward revision in first quarter GDP numbers, and a Federal Reserve survey (the 'Beige Book') which reported only moderate economic growth and forecast that business activity would probably slow.

The news from the political arena was not particularly helpful, either. The Clinton tax-raising, expenditure-cutting, deficit-reducing economic package may have squeaked through the Senate on Thursday night, but investors were not necessarily overjoyed at the President's good fortune.

While the bond markets like Clinton's economic measures because they are seen as an attempt to shrink the federal deficit, the stock markets worry that higher taxes and lower government spending will undermine an already fragile economy.

Thus, over the next few weeks investors face the prospect of a muted economic recovery and less-than-sparkling second quarter corporate earnings. If the economy and earnings fail to catch up with the optimistic expectations that have been built into share prices, then the markets will have to give back some of the gains earned earlier this year.

Yet stocks have been holding their ground. At around 3,490, the Dow Jones Industrial Average is still within 70 points, or 2 per cent, of its all-time high, while the Standard & Poor's 500 index is also within a couple of percentage points of its record.

This resilience is primarily a reflection of continued huge flows of investor cash into equities (much of it via the booming mutual fund industry) and hopes that low interest rates will fuel the market, and the economy, for the rest of the year. These two factors are inextricably linked, because investors are shifting large amounts of money into stocks because low interest rates are destroying the returns they earn on short-term assets like money market funds and bank certificates of deposit. So long as rates remain low, that money will keep rolling into equities.

And rates remain extremely low. Earlier this year the yield on the 30-year government bond was above 7 per cent. This week, thanks to encouraging inflation data, the 30-year yield dropped to 6.72 per cent, close to its all-time low.

Low interest rates, however, are not enough to sustain corporate America. Companies' borrowing costs may have been lightened because of the easing in credit conditions, but domestic demand has proved worryingly fickle.

Fearful of unemployment, unhappy about the prospect of higher taxes, and pessimistic over the economic outlook, consumers are retreating. This explains many of the recent profits warnings. Clothing sales have been poor at Kmart, too many Nike and Reebok sportshoes remain on the shelves, and seats are empty on American and USAir. People are not spending, and the markets are worried.

Monday 3510.82 + 16.05 Tuesday 3497.53 - 13.29 Wednesday 3466.81 - 30.72 Thursday 3490.61 + 23.80 Friday 3490.89 + 0.28

Internal Memorandum

From: the Governor

To: the Governor-elect

Dear Eddie,

I thought I would just jot down a few notes to help you with the handover this week. I wouldn't want all my good work over the past 10 years to be wasted because you couldn't unlock the filing cabinet.

Inflation

Getting inflation down has been my top priority since I first sat at this desk on July 1 1983. Although I say it myself, I have done rather well, though those politicians keep trying to take the credit. Perhaps that is an argument for an independent central bank.

Now, don't you go messing it up. Promising to take a pay freeze yourself was a good wheeze - and an incentive to keep the screws on - and keeping the Jag rather than taking the new Roller was another, although your successor might not like the precedent.

Above all else, don't let base rates come down too soon. You saw how the stock market got worked up on Monday at the thought of a rate cut - up 24 points on the day and through 2,900 again.

One good thing about Lamont's resignation speech: he blew the whistle on political interest rate cuts, so you ought to be able to fend off Downing Street for a while. Clarke was sounding a bit more reasonable in that interview, but don't trust 'em is my advice.

Currencies

Afraid I'm handing over to you at a rather busy time, with the European currencies all over the place. That bust-up between our friends in Germany and France has really stirred things up. My advice is to keep your head down and let them fight it out. And if sterling appreciates a bit against the D-Mark, never mind - it will all help on the inflation front.

The economy

Some better news on this one. I am really quite optimistic that the recovery is getting going. Those first-quarter GDP figures on Tuesday, showing an upward revision from the provisional number to +0.9 per cent (excluding oil and gas), are encouraging. My main concern is that recession in Europe could drag our economy back down again later in the year. But exports have been doing rather well. So, you can use that as further evidence that an interest rate cut isn't necessary.

The Budget deficit

I wouldn't presume to give you any advice about funding; after all, you've been telling me how to do it for years. Seems to me it's going pretty well so far this year, with another auction coming up on Wednesday, despite the size of the deficit. Of course, there's BT3 as well. And after Warburg's success with the Zeneca rights issue this week - 86 per cent take-up, not bad - it ought to get away.

But whenever you're talking to the politicians, do remind them that funding is one thing but the real solution is to cut the deficit. We just can't go on living beyond our means like this. Clarke's hints that taxes could go up aren't enough in my view. They've really got to cut benefits - so long as the current generation of pensioners is protected.

Corporate sector

Company finances are better than they have been for years. Borrowing is at a five-year low, according to the statistics put out this week; and, with a bit of luck, the corporate sector should move into a cash-flow surplus this year. But mind your eye, is my advice. There are still a lot of difficult situations around with heavily-borrowed companies - the ones that were in too much of a mess to have rights issues. We should know whether Gerald Ronson's Heron outfit has got its creditors on-side this week, but you might still have to do a bit of nudging on that one.

That Spring Ram episode was a bit nasty, too, and it's not as though it is the only company recently to issue two profit warnings in as many months. I sometimes wonder if these companies have any idea what's going on in their businesses. How different from life at the Bank.

Another potential problem that needs to be headed off is how companies are going to finance the recovery once it gets moving. The banks have suffered so badly in the recession that they can't lend too much risk capital. You need to find a way to let their profits recover - let lending margins widen somehow - but this is a really tricky one, politically. I'm sure you understand my concern as a former, and perhaps future, clearing banker.

The stock market

I fear that the market is getting a bit frothy, although it had settled down again by the end of the week. Some of the brokers have been pushing up their forecasts for the Footsie at the year-end on the hopes of faster earnings growth than they had thought. I'd feel a bit easier if they would wait for some firmer evidence first.

The stock exchange

You need to keep a watchful eye on the chaps at the Tower, too. Everything's been going wrong lately, what with the Taurus mess and all. They seem to be getting a bit lax about company announcements, as well. Did you notice the way shares in Rothmans and Dunhill jumped on Tuesday when their controlling shareholder, Richemont, said it was going to re-organise the businesses? The exchange really should have made sure that announcement came out after the market closed, or else suspended the shares first. The EBRD

Oh dear. Jacques Attali's resignation throws that up in the air - and after all the trouble we took to make sure the blessed bank came to London. Try to use your influence to get a sensible replacement.

Well, that's about everything I think. I've left the keys in the top right-hand drawer. Remember, if you can stick it out without too many disasters, you collect the peerage at the end. And, as the man said, don't let the b*****s get you down.

Hope to see you down at Dunguvnin sometime.

ROBIN

AS ROBIN Leigh-Pemberton retires to his Kent estate after 10 years at the Bank of England, he can reflect with satisfaction on the enhanced status of his institution. The BCCI scandal seems to have been brushed aside, and a real discussion is going on about whether the Bank should be granted independent control over monetary policy.

Perhaps in future the governor will no longer be a remote City of London grandee, making speeches carefully overlaid with impenetrable waffle and stripped by the Treasury of all controversy, but will acquire a clear, anti-inflationary mission for which he is directly answerable to parliament.

How things have changed in 10 years. Leigh-Pemberton's predecessor, Gordon Richardson, carried greater clout as a central banker but independence was not on the agenda. Of course, this may only reflect the difference between Margaret Thatcher and John Major. In any case, the swing of the pendulum back to the Bank simply reflects the fact that the Treasury has become such a disaster area. In the mid-1980s, the Bank was regarded with contempt by Whitehall, not least because of regulatory upsets such as Johnson Matthey Bankers. Now, the Treasury is licking its own wounds.

But the news from Frankfurt, home of that doyen of independent central banks, the Bundesbank, is discouraging. Making only tiny concessions on interest rates this week, the Bundesbank continues to slug out a grim battle with the free-spending federal government amid the wreckage of the German economy. The Law of Misplaced Credibility states that economic concepts reach their greatest level of popularity just when they are about to hit trouble. Countries like the UK, Spain, Sweden and Portugal flocked to join or track the European exchange rate mechanism just when it was starting to choke on its own internal contradictions and newly-acquired rigidity. So it appears to be with the idea of central bank independence.

There is an intoxicating appeal in an off-the-shelf formula that might solve deep-rooted problems. The ERM seemed so attractive to the British government three years ago because it would permit cuts in interest rates ahead of the next election while exerting a magic spell over the British economy, encouraging adjustment to a low inflation rate. Now, the Bank of England may be offered the tarnished magic wand.

One argument is that the government will be forced to follow non-inflationary policies because of the influence of the Bank: interest rate cuts will not be possible ahead of an election, for instance. But it is also possible that, for a while, the government will be able to follow more dangerous fiscal policies because of the financial markets' exaggerated faith in the central banks' powers. At least, this is how it has been working out in Germany recently, although the magic is dissipating and French franc interest rates are slipping below those of the D-Mark.

In fact, any anti-inflationary strategy requires more than money market manipulation - it needs a degree of consensus throughout society. Sometimes, inflation is the best solution, and it would be dangerous to block it. In a low inflation environment, prices must be flexible downwards as well as upwards and, if they are not, disaster may ensue: inflexible wages have led to massive unemployment in the UK, and excessive mortgage borrowing has led to ruin for more than 1m home owners, not to mention serious losses for financial institutions. Nigel Lawson tried to manage the British economy on the basis of interest rates alone, and the Bank of England would be unwise to emulate him.

Actually, Leigh-Pemberton's anti-inflationary record is not that bad, judged by the standards of several predecessors. He took over in July 1983 when headline inflation happened to be an erratically low 3.5 per cent, and it has averaged 5.2 per cent a year since. Perhaps that is an undeservedly low figure when broad money growth has averaged an extraordinary 12.5 per cent annually with M4 more than tripling within the decade; the Bundesbank would have been appalled.

Certainly, there has been no swindling of savers under Leigh-Pemberton. Short-term depositors have done well, perhaps too well, with money market returns averaging 11.1 per cent before tax and holders of gilt-edged enjoying average returns of 11.8 per cent, nearly twice the rate of inflation. That was not especially expensive for the government given that the total net public sector borrowing requirement for the decade was only Pounds 64bn, scarcely more than Kenneth Clarke will be borrowing in 1993-94 alone. Since mid-1983, net public sector indebtedness has shrunk from 45 to 30 per cent of GDP. How different the trend will be in the rest of the 1990s.

Now, however, Eddie George will have to preside over a period in which real interest rates are likely to decline and in which a still-bloated banking system will be forced to shrink. This will sorely test the Bank's sense of priorities. Already, it is troubled by conflicting objectives. The BCCI affair suggested that its concerns with polishing the City of London's image clashed with its responsibilities for protecting depositors; and, in the end, the ERM strategy threatened to undermine the solvency of the banking industry.

Attitudes may have to change. This week, the new deputy governor, Rupert Pennant-Rea, remarked on what he had learned in two months at the Bank about traditional central bankerly behaviour. He discovered that if his son were to ask him what 5x12 made, his reply should be: 'It all depends.'

'Obfuscation,' he added, 'is altogether too precise a term for what central bankers do.' But a good one-liner will wear very thin if the Bank of England accepts new responsibilities without understanding how to handle the higher political profile which will accompany them. The Old Lady may yet turn into an Aunt Sally.

YOU ARE about to have the anaesthetic before an operation to remove a brain tumour. Would you feel happier knowing that the most delicate part of the procedure was to be carried out by the gently trembling hand of the world's most skilful surgeon - or by a rock-steady robot? That question will soon be more than a fantasy because surgery is in the early stages of a technical revolution. The first step has been the spread of 'keyhole' operations over the past five years. Instead of cutting open the patient, the surgeon uses instruments guided by telescope through tiny incisions. Soon, it will be possible to work by remote control on patients thousands of miles away, using a combination of telecommunications and virtual reality.

The most striking sign of change, though, is the way surgeons are starting to welcome robotic assistants into their operating theatres. Within the past few months, robots have helped to carry out hip replacements in California, prostate operations in London and brain surgery in Grenoble, France. Later this year, gall bladder removal, hernia repair and a variety of other abdominal operations will be added to the list of robotic accomplishments. Despite this, even the most enthusiastic surgeons say it is likely to be several years before they would consider leaving a robot to operate on its own.

The late Hap Paul, chief inventor of California's Robodoc, cautioned: 'We have to move very slowly and carefully because one false move by a surgical robot - and this whole technology is set back by many years.' Robodoc is the world's largest and best-financed project in medical robotics. Since November, 10 patients at Sutter general hospital in Sacramento have had hip replacements with the aid of Robodoc, a 250 lb automaton programmed to carve the cavity for an implant in the thigh bone.

Although Paul died two months ago (at only 44), Integrated Surgical Systems, the company he founded with financial and scientific backing from IBM, is forging ahead. It is waiting for approval from the Food and Drug Administration to carry out a clinical trial of Robodoc with 300 patients in three US hospitals.

Why should a patient trust a robotic tool rather than the skilled hands of a human specialist? The most important reason is that an electronic arm is capable of precision well beyond that of the steadiest and best-trained surgeon. ISS hopes to prove this through its trial, in which patients will be allocated at random into one group treated by Robodoc and another receiving conventional hip replacements.

Surgical robots promise more than improvements in existing procedures, says Patrick Finlay, managing director of Armstrong Projects, a fledgling UK medical robotics company based at Beaconsfield near London. 'The reduced collateral damage and greater precision of the robot will make it possible to do operations that would otherwise be too risky to contemplate. For example, a tumour very close to the optic nerve can be tackled without making the patient blind.'

Several different types of surgical robot are under development around the world. Robodoc is an 'active' robot that actually cuts human tissue. 'Orthopaedic work is an attractive application because the robot is working on hard tissue that doesn't move if you prod it,' notes Brian Davies, an engineer specialising in medical robotics at Imperial College, London.

Most operations, however, involve cutting soft tissues - a task that is more delicate than carving bone. So far, only 'passive' robots have been used for this type of surgery. They may move instruments inside the patient, under the surgeon's direction, but they do not yet wield a scalpel or laser beam.

An example is Laparobot, which Armstrong Projects is developing with Mark Ornstein, a surgeon at the London Clinic. Laparobot will give someone carrying out keyhole surgery the impression of 'walking around' inside the patient's body, using tele-presence techniques. A keyhole surgeon views the operating site with a miniature video camera at the end of a thin optical tube, inserted into the body through a puncture hole (typically, in the tummy button). This instrument, called a laparoscope, projects the scene on to a TV screen above the patient.

Normally, an assistant has to hold the laparoscope and move it when the surgeon needs a different view. But Laparobot itself senses the position of the surgeon's head and moves the image accordingly. If the surgeon pushes a foot button and moves his head to the left, the robot will change the view inside the patient's body. For this year's initial trials at the London Clinic, Laparobot will work with an existing TV monitor - but the next stage will be for the surgeon to wear a helmet-mounted display which will give the impression of being immersed in the operating environment. As he looks around, the scene will change as though he were actually inside the abdominal cavity.

Further in the future lies the prospect of linking the surgeon's finger movements to the control of micro-instruments within the body. 'Laparobot will make the surgery more efficient - less stressful for the surgeon, faster and more accurate, and with less risk of damage to the patient,' says Ornstein.

Armstrong is also working with Professor David Thomas, of London's National Hospital for Neurology, to develop Neurobot, a system for carrying out brain surgery. By the end of this year, they hope to have demonstrated an 'image-guided robot' that will help the surgeon position his instruments at the correct point in the brain to perform the operation. The next stage will be for Neurobot itself to insert the instruments.

A surgical robot is given as much prior information as possible about relevant parts of the patient's body - usually, from a CT or MRI scan. Its computer converts this into a digital model of the patient. Although the surgeon works out in advance the path of the operation, based on the computer model, the system must be flexible enough to respond to unexpected events.

Neurobot, for example, will have a sensor inside the patient's head. If it detects the presence of an unexpected blood vessel, it will prompt the surgeon for advice. Its software might propose a modified route, taking the new information into account, but the robot will not go ahead until the surgeon has signalled his approval.

Finlay says a good indicator of progress in surgical robotics will be the increasing amount of freedom given to the robot. 'Although the surgeon will never cease to participate, it is realistic to envisage a situation similar to the relationship between an airliner captain and his autopilot, in which the human provides a supervisory and monitoring role and is available to take over the critical manoeuvres,' he says.

The consultant need not be in the operating theatre with the patient. In tele-surgery projects under way in the US and France, an experienced surgeon uses a video link to supervise a junior doctor in a hospital hundreds of miles away. The surgeon could equally well supervise a distant robot, although local medical and nursing staff would still have to be present in case the system crashed.

Everyone involved in medical robotics is obsessed with safety. Yet, as Davies points out, there are no agreed safety standards for robots operating on people, whereas regulations require industrial robots to work in metal cages. (The fact that two workers in Japan have been killed by factory robots going out of control shows the need for such rules).

'There are two views on safety,' says Davies. 'One is that it's acceptable to start out with an industrial robot provided you put in a top-level software system to bring the thing to a halt in the event of some failure. But, in my view, that's not safe enough. I think you need to re-develop the robot from the basic servo level upwards, building in safety at every level.'

That means giving the surgical robot the equivalent of a metal cage, with duplicated software and hardware constraints to prevent it moving beyond pre-defined limits. And it must move slowly enough for the supervising surgeon's hand to hit the stop button in time to avoid damage if all the safety systems fail. Demonstrating safety is not enough, though. Growing concerns about the financial costs of medical care are forcing both public health authorities and private hospitals to demand evidence that new technology will deliver benefits that outweigh its expense.

Drugs have long had to justify their effectiveness in large-scale clinical trials but, until now, new surgical procedures and medical equipment have been introduced with remarkably little systematic assessment. A report on medical research earlier this year by the UK government's Advisory Council on Science and Technology (Acost) pointed out: 'With the exception of pharmaceuticals, demands for evaluation have been questioned because it 'stands to reason' that the new techniques will be 'better'.'

Peter Doyle, research director of ICI and chairman of Acost's medical research committee, gives keyhole surgery as an example of a procedure that has been introduced 'haphazardly' without proper evaluation. The report says the National Health Service should require all new medical devices to be assessed under controlled conditions, and their cost effectiveness measured.

Miles Irving, professor of surgery at Manchester University's Hope Hospital, says that such assessment is all the more necessary 'because surgeons face strong consumer pressure to introduce new procedures before they have been properly evaluated.'

Hap Paul felt that pressure when he was looking for sites to test Robodoc. 'Tertiary care centres in the US - the big university hospitals - see this as an advance that will help them attract patients,' he said. 'So, we have to be very careful in choosing our sites, to make sure it's not just a publicity stunt for them.'

Indeed, says John Hutton, a health economist at York University, US experience shows that patients regard hi-tech equipment in itself as an indicator of quality, whether or not there is any clinical evidence to prove its superiority. Therefore, hospitals compete by buying more and more flashy machines - and their charges shoot up far faster than inflation. The introduction of an internal market in the NHS is likely to lead to similar competitive pressures in the UK.

ISS believes its clinical trial will enable orthopaedic hospitals to justify buying a Dollars 750,000 Robodoc, doing 400 hip replacements a year, on the basis that implants from robotic operations last longer than those inserted manually and so save money in the long run. But the recent history of medical research and technology, from antibiotics to diagnostic scanners, shows that while each development can be justified in isolation as being cost-effective, the overall result is to add substantially to the financial burden of health care by creating new demand from patients and adding to the number of elderly people in the population.

Two decades from now, only second-class patients will choose to have a purely manual operation. But, in contrast to labour-saving robots in a car factory, surgical robots can only make the process more expensive. Enthusiastic medical technologists can answer any question except one: how will we pay for it?

-------------------------------------------------------- STOCK MARKET INDICES -------------------------------------------------------- FT-SE 100: 2,887.5 (-7.2) Yield 3.98 FT-SE Eurotrack 100 1,202.12 (+2.54) FT-A All-Share 1,425.65 (-0.2%) FT-A World Index 158.84 (+1.1%) Nikkei 19,659.57 (-25.50) New York close: Dow Jones Ind Ave 3,490.89 (+0.28) S&P Composite 447.60 (+0.98) -------------------------------------------------------- US CLOSING RATES -------------------------------------------------------- Federal Funds: 2 15/16% (3%) 3-mo Treas Bills: Yld 3.137% (3.158%) Long Bond 105 13/32 (105) Yield 6.7% (6.732%) -------------------------------------------------------- LONDON MONEY -------------------------------------------------------- 3-mo Interbank 6% (5 15/16%) Liffe long gilt future: Jun 107 7/16 (Jun 107 19/32) -------------------------------------------------------- NORTH SEA OIL (Argus) -------------------------------------------------------- Brent 15-day (Aug) Dollars 17.59 1/2 (17.57) -------------------------------------------------------- Gold -------------------------------------------------------- New York Comex Aug Dollars 378.1 (376.1) London Dollars 376.45 (373.8) -------------------------------------------------------- STERLING --------------------------------------------------------

New York close: Dollars 1.47565 (1.4685) London: Dollars 1.478 (1.4685) DM 2.515 (2.5125) FFr 8.495 (8.45) SFr 2.235 (2.2325) Y 156.75 (160.25) Pounds Index 79.5 (79.4) -------------------------------------------------------- DOLLAR -------------------------------------------------------- New York close: DM 1.70695 (1.7073) FFr 5.745 (5.749) SFr 1.51525 (1.5168) Y 106.285 (108.75) London: DM 1.702 (1.7115) FFr 5.7475 (5.755) SFr 1.5115 (1.5195) Y 106.05 (109.1) Dollars Index 65.3 (66.0) Tokyo close Y 106.35 --------------------------------------------------------

BRITISH CUSTOMS officials are planning a big crackdown on cross-Channel bootleggers.

Officers from the investigation division of HM Customs & Excise are preparing raids in the next few weeks on up to seven teams of professional smugglers it has identified as a result of surveillance and intelligence-gathering.

The action follows two raids in recent weeks that led to the seizure of up to Pounds 100,000 in goods and questioning of 18 individuals.

Officials will also lobby the authorities to revoke the alcohol licences of any shops and pubs caught accepting goods on which no duty has been paid.

Two men charged with evading duty on 11 tons of cans and bottles of beer were remanded until July 9 at Thames court, east London, yesterday after the first successful prosecution of an evader last month.

Up to the end of May, 24 cases had led to arrests and charges concerning goods worth Pounds 142,000; 243 were proceeding to prosecution or fines on goods worth Pounds 419,000; and 175 cases involving goods totalling Pounds 18,409 had been dealt with simply through seizure.

The actions reflect a shift of Customs resources from border controls towards greater use of intelligence to detect likely duty evaders.

Since the start of the year, anyone is entitled to import 'reasonable quantities' of alcohol and tobacco for personal use. Customs officers believe that relatively little systematic smuggling has taken place.

Mr Tim Hampson of the Brewers' Society called the removal of restrictions for personal use 'a bootleggers' charter' that was affecting the trade of brewers, pubs and off-licences around the country, particularly in the south-east.

Customs argues that lifting the personal restrictions will reduce excise duties by about Pounds 250m a year.

MR Theo Waigel, the German finance minister, effectively told his French counterpart, Mr Edmond Alphandery, yesterday to mind his own business: the Bonn government did not need outside advice, and German monetary policy was a matter for the Bundesbank alone.

He was responding to a broadcast in which Mr Alphandery claimed he had called a meeting in Paris for yesterday to discuss concerted action on interest rates. Mr Alphandery said the Bundesbank should move faster to relax its 'unduly restrictive' monetary policy.

Mr Alphandery said: 'We are going to speak equal to equal . . . That was not the case a few months ago . . . Today the franc can support itself, perhaps better than the D-Mark.'

Mr Waigel, blaming pressure of work, instantly cancelled what his officials called a 'routine' quarterly meeting of the Franco-German economic and finance council. Yesterday he aired his riposte in a radio interview.

Mr Waigel said the Germans knew exactly what was required and what was possible. The view from Frankfurt and Bonn is that the fledgling French minister's statements on Thursday were clumsy and undiplomatic.

There would 'certainly' be no collaborative reductions in interest rates, he said.

The government was doing 'precisely what is necessary to provide the Bundesbank with room to manoeuvre' in preparing cuts to reduce public-spending deficits, which the Bundesbank considers essential before it can consider further interest rate reductions.

It was certainly desirable that that interest rate cuts should be possible in a period of recession, Mr Waigel said. He said German long-term rates were at their lowest for three years.

He and Mr Helmut Schlesinger, the Bundesbank president, who was also due to attend the cancelled meeting, had repeatedly emphasised how important it was for other countries to make the most of any latitude.

France now has official short-term rates below those in Germany for the first time since the late 1960s.

Currencies, Page 13

LLOYDS BANK is pressing to be allowed to disclose details of the accounts of its customers who complain to newspapers about how they have been treated, without first having to obtain the customers' written permission.

Lloyds wants all banks to be allowed to respond to public criticism by discussing details of their customers' accounts with journalists. The call is in response to the wave of criticism of banks over the past two years.

The suggestion is among a series made by Lloyds to the review committee headed by Sir George Blunden, the former deputy governor of the Bank of England, which is reviewing the voluntary code of practice governing their behaviour.

Lloyds has suggested in a confidential submission to the British Bankers' Association that all banks should be able to discuss relevant details of customers' accounts.

The code, introduced in March 1992 as a system of voluntary regulation, currently imposes a 'strict duty of confidentiality' on banks. Lloyds believes this prevents it from replying sensibly to many public criticisms.

It has suggested the code should clarify the maximum for which customers are liable in cases of 'phantom' withdrawals from cash machines. At the moment, banks can charge Pounds 50 for each withdrawal or in total.

Among suggestions made by the bank for the revision of the code, due to come into force next March, are:

Banks should provide for customers on request details of how interest charges on overdrafts have been calculated, and how it has worked out the amount of interest credited to interest-bearing current accounts.

Lloyds believes this would replace services offered by small companies which have developed software for customers to calculate the charges and interest applied to their accounts and check for banks' mistakes. Banks should have a united policy for the disclosure of full details about customer accounts to credit reference agencies.

Lloyds also believes the code should define more closely the 'express consent' which is required from customers before banks can distribute to their insurance and product sales arms data about current accounts.

The review committee is expected to report on the current working of the code of practice next month. Lloyds declined to comment on its submission.

Ghosts in the machines Page 8

After London International's earlier indiscretions, its annual results yesterday held little surprise, except possibly that the photo-processing business has done even worse in the second half than most expected. Nor, having been rebuked by the stock exchange, is the company giving much away about the extent of likely recovery this year. The absence of restructuring charges should stem the outflow of cash, but LIG will need more than that to reduce its 105 per cent gearing.

That may eventually require the sale of the photo business which has proved too vulnerable to the cycle for a company of this size. Without that division, the company would be left with health-care business generating a high-return but offering limited growth prospects given the modest expansion of the world condom market, LIG's wide margins and its high market share in many countries.

How that question will be addressed is a matter for the longer term. For now, much depends on photo-processing which is a matter of the weather as much as the economy. Judging by the way some are inclined to interpret the new insider trading legislation, the stock exchange might have to pay close attention to who is receiving long-range weather forecasts from Mr Michael Fish. It would help prevent another communications upset, though, if LIG were to issue a timely statement about the summer photo business at the latest by its annual meeting in September.

David S Smith has negotiated the recession like a traveller crossing a river, hopping from stepping stone to stepping stone. While profits from Smith's cyclical paper division have collapsed from Pounds 15m to next to nothing, the Pounds 24m contribution from the Kayserberg acquisition has kept it moving nicely ahead. With recession in continental Europe now lapping around Kayserberg, Smith has leapt again in buying Spicers for Pounds 95m. Its contribution, combined with strengthening UK paper demand, should save Smith again this year. With the Kemsley mill likely to prove its worth by mid-decade, Smith's growth prospects will be considerably enhanced. After months of disappointment, its shares have some room to run.

The Spicers acquisition, though, is not without worries. The company's foray into France has proved disastrous. It may take much time and effort to disentangle. The growing power of stationery retailers also poses a long term threat to Spicers' wholesaling market. A nasty price war in the envelope market is only just cooling down. Still, an exit multiple of little more than 11 is hardly demanding. Moreover, the risks are lessened by Mr Peter Williams' familiarity with the business. Having unloaded Spicers to SCA for some Pounds 300m three years ago at the time of the Reedpack acquisition, Mr Williams is now buying it back again at book value for Smith.

The repercussions of crisis at Lloyd's spread far beyond the individual Names now being asked to pick up the pieces of past mistakes. The thumping Pounds 3bn loss on Lloyd's 1990 underwriting account announced this week, with another Pounds 1bn deficit forecast for business written in 1991, is causing a serious erosion of underwriting capacity. Far from creating opportunities for other insurers which write international risks in London, business is being driven elsewhere. It is in the wider interest of the City, then, that Lloyd's shrinkage is reversed.

With premium rates increasing and tighter underwriting standards in place, business now being written should show decent profits. The 25 per cent average return on capital - including underwriting and investment returns - targeted in Lloyd's business plan does not look unduly optimistic. But neither is it generous, given the level of risk. A quoted Lloyd's fund of the type planned by Sedgwick might attract investors on the basis of such returns. Corporate investors putting money into Lloyd's through less liquid vehicles will be looking for something more.

Professional investors will fancy their chances of beating the average, notably by picking winners among the underwriting syndicates. But the sums are finely balanced. If the entry cost for corporate capital is set too high - or if future returns are diluted by the cost of borrowing to subsidise past losses - there is a danger that Lloyd's will be starved of new blood.

It would be easy to depict Richemont's restructuring as a cynical, short-term exercise designed to release cash to help the Swiss-based company repay Pounds 612m of loan notes due next year. No doubt such financial demands crossed the Rupert family's collective mind more than fleetingly. But Richemont has long demonstrated that its interests as Rothmans' majority shareholder are not inimical to those of minority investors. Further consideration of its asset reshuffle emphasises the point.

Following the restructuring, Rothmans' shareholders will receive a fair dollop of cash in the form of a 76p pay-out per share. Moreover, Rothmans' dividend cover will drop from almost five to just over two. That will still leave the reshaped Rothmans with a yield below that of BAT Industries. But as a pure tobacco company, Rothmans promises to pursue expansion more aggressively, perhaps offering a faster rate of growth.

The whole deal depends, though, on Dunhill's minority shareholders agreeing to fold their interest together with Richemont's Cartier business into the newly created Vendome. Dunhill's shareholders may justifiably gripe at the higher valuation placed on Cartier's assets. They may also object to being relegated to an even less significant minority without any compensating goodwill premium. But Dunhill is suffering tough trading conditions. The application of Cartier's management skills and access to a more extensive distribution network should help compensate. The merger will also remove Richemont's inherent problem of allocating financial resources between its various luxury brands. The restructuring may not immediately release much additional value. Richemont will have to persuade Dunhill shareholders that it should yield rewards over time.

MR Theo Waigel, the German finance minister, yesterday effectively told his French counterpart, Mr Edmond Alphandery, to mind his own business: the Bonn government did not need outside advice, and German monetary policy was a matter for the Bundesbank alone.

He was responding to a broadcast in which Mr Alphandery claimed he had called a meeting in Paris for yesterday to discuss concerted action on interest rates. Mr Alphandery said the Bundesbank should move faster to relax its 'unduly restrictive' monetary policy.

'We are going to speak equal to equal . . . That was not the case a few months ago . . . Today the franc can support itself, perhaps better than the D-Mark,' Mr Alphandery said.

Mr Waigel, blaming pressure of work, instantly cancelled what his officials called a 'routine' quarterly meeting of the Franco-German economic and finance council. Yesterday he aired his riposte in a radio interview.

Mr Waigel said the Germans knew exactly what was required and what was possible. The view from Frankfurt and Bonn is that the fledgling French minister's statements on Thursday were clumsy and undiplomatic.

There would 'certainly' be no collaborative reductions in interest rates, he said.

The government was doing 'precisely what is necessary to provide the Bundesbank with room to manoeuvre', in preparing a package of cuts aimed at reducing public spending deficits, which the Bundesbank considers essential before it can consider further interest rate reductions.

It was certainly desirable that that interest rate cuts should be possible in a period of recession, Mr Waigel said. He said German long-term rates were at their lowest for three years.

He and Mr Helmut Schlesinger, the Bundesbank president, who was also due to attend yesterday's cancelled meeting, had repeatedly stressed how important it was for other countries to make the most of any latitude allowing reductions.

France now has official short-term rates below those in Germany for the first time since the late 1960s.

Fresh indications that western German inflation has peaked emerged yesterday with reports of year-on-year rises of 4.1 per cent and 3.9 per cent in two key states during June.

For the whole of the region inflation is expected to dip to 3.5 per cent by the end of the year. But recent forecasts suggest little further decline in 1994.

Currencies, Page 13

Wall Street

US stock markets ended a difficult week in subdued fashion yesterday, with share prices little changed across the board in light trading, writes Patrick Harverson in New York.

At the close, the Dow Jones Industrial Average was up 0.28 at 3,490.89. The Standard & Poor's 500 finished 0.98 higher at 447.60, while the Amex composite ended down 0.42 at 430.578. The Nasdaq composite put in the best performance, ending 6.08 higher at 694.80. Trading volume on the New York Stock Exchange was only 206m shares.

A week in which the markets posted both losses and gains ended on a flat note. Investors and dealers mostly ignored the overnight news that President Clinton's deficit-reduction economic package had narrowly passed the Senate, because the plan is likely to face further changes before it finally emerges from Congress, probably in August.

The day's only economic news was positive - the National Association of Realtors announced that sales of existing single-family homes rose by 4.6 per cent last month, a bigger increase than analysts had expected.

Signs of strength in the housing market, however, failed to stimulate buying interest in the equity markets, which remained dogged by concerns about corporate earnings. The second quarter reporting season is expected to start in earnest within the next two weeks.

Bond prices were also subdued, although the upward momentum in longer-dated Treasury securities was maintained.

In late trading, the benchmark 30-year government bond was up 11/32 at 105 3/8 , and the yield was down to 6.702 per cent, close to its all-time low.

Profits warnings continued to affect certain stocks. Hershey Foods slumped Dollars 2 3/8 to Dollars 47 1/8 after the company said that its second quarter earnings could be 5-10 cents below the 34 cents a share it earned as operating income a year ago.

Airline stocks continued to suffer from a renewed air fares war and recent warnings of slowing sales from the industry, although declining oil prices have given the sector some support. AMR, parent of American Airlines, fell Dollars 3/4 to Dollars 61 7/8 , Delta dropped Dollars 7/8 to Dollars 47 3/8 , UAL Dollars 3 1/8 to Dollars 121 3/8 and USAir Dollars 1/8 to Dollars 16.

Precious metals and mining stocks were firmer in the wake of higher gold prices. Newmont Mining climbed Dollars 1 3/4 to Dollars 51 3/4 , Newmont Gold put on Dollars 1 1/2 at Dollars 45 3/4 , ASA added Dollars 1 at Dollars 47 3/4 , Homestake Mining edged Dollars 3/8 higher to Dollars 19 and Pegasus Gold rose Dollars 1/2 to Dollars 22 3/4 on the American Stock Exchange.

Canada

TORONTO ended the week on a winning note. Based on preliminary data, the TSE-300 index was up 12.19 points to 3,991.77 after briefly breaching the 4,000 mark. On the week, the index rose about 85 points.

Volume fell to 70.813m shares from 80.227m shares on Thursday and trading value was CDollars 777.8m against CDollars 919.1m.

Golds rose 2.11 per cent and banking stocks increased 1.18 per cent. Energy was also higher: Westcoast Energy rose 3/8 to 20 1/2 and Northstar Energy jumped 2 1/4 to 30 3/4.

A potent cocktail of falling interest rates and rising corporate earnings, spiced by devaluations and dollar sensitivity, has put the Nordic stock markets among Europe's top performers this year.

Indeed, Finland's Hex index has led continental Europe with a 34 per cent rise, while Oslo's all share index has shown a 28 per cent gain. With both Copenhagen and Stockholm having strong runs, the Nordic Securities Market calculates that the average rise for the four exchanges this year is close to 20 per cent.

Falling interest rates and the expectation of further cuts have been the main influence. This has increased prospects for economic recovery, soothed nervousness over the state of the region's loss-making banks, and bolstered corporate earnings. Interest has been enhanced by increased buying by foreign investors switching away from the German and French markets.

The upturn in both Finland and Sweden has been helped by significant currency depreciation, following the decision to float the markka and krone last autumn, and by the expectation that both economies will emerge from three years of negative GDP growth in 1994.

But perspective is important here. At the end of May, the Nordic markets were only up 6 per cent from the same time last year. That is a good indication of the extent to which Stockholm and Helsinki, in particular, have recovered since the autumn currency turmoil.

The question, as they go into their summer lull, is whether the impetus can be maintained. Some analysts feel that much of the corporate earnings recovery is now discounted in Sweden and Finland, and they are nervous about prospects in Denmark, with its strong currency and dependence on the German market. There are also worries about new political turbulence in Sweden and Finland in the autumn, as well as the general economic malaise in Europe.

At the same time, the firm expectation that European interest rates will follow German rates downwards over the rest of the year has led most analysts to conclude that the Nordic markets stand to make further gains during the autumn, with little talk of anything more than a technical downward correction.

Finland has already seen a correction, the Hex having fallen by around 12 per cent since its May 24 high of 1,258. Having more than doubled since last September, its ebb on pre-holiday profit-taking was hardly surprising, but it has prompted some commentators to suggest that the market has got ahead of itself.

Sweden also saw a correction this week as a weakening currency postponed hopes of further interest rate cuts, and the market reacted to news of a 3.8 per cent fall in first quarter GDP.

But there is a feeling that share prices could move further ahead if the dollar strengthens further, and as companies begin to feel the full benefits of last November's effective devaluation in the second half as hedging programmes expire.

Nevertheless, there are outstanding concerns over the robustness of the economy and the size of the budget deficit.

Expectations are arguably highest for Norway, in spite of the spurt it has already put in this year, because of improving economic fundamentals and the high percentage of corporate earnings linked to the strengthening dollar. There are also clear indications that the country is past the worst of its banking and insurance crisis.

A strong recovery in shipping share prices - based on dollar strength rather than improving market fundamentals - is already under way, with the Oslo shipping index rising to 505 this week from 345 at the beginning of March.

Mr Tom Skjelstad, a stockbroker at Norse Securities, believes there could be further gains in the autumn, taking the total index to around 550 at the end of the year from 485 this week. In the meantime there is likely to be nervousness about the outcome of the September election, with the governing Labour party likely to poll fewer votes because of its support for EC membership.

Denmark is probably the least favoured of the four. The 'Yes' to Maastricht is May was already discounted, and so is likely to have little bearing on the market's development over the rest of the year.

In addition, the country's exporters are struggling with a strong currency, worsening conditions in Germany, and a negative impact from recent tax reform proposals.

In spite of this, not everyone is pessimistic. Mr Fleming Madson, head of equity research at Danske Securities, predicts that Danish corporate earnings will still rise by 17 per cent this year, and that the market can rise by a further 10 per cent over the next 12 months.

POSITION squaring in advance of the weekend's Tokyo metropolitan assembly elections dominated activity, and share prices posted marginal declines in low volume, writes Emiko Terazono in Tokyo.

The Nikkei average fell 25.50 to 19,659.57 after a high of 19,755.45 and a low of 19,485.79. The Topix index of all first section stocks moved even more narrowly, falling 0.03 to 1,584.05 and, in London, the ISE/Nikkei 50 index fell 0.69 to 1,200.25.

Most investors remained sidelined, while public fund managers supported the market against arbitrage selling. Volume totalled 260m shares against 250m. Gainers led losers by 522 to 468, with 164 issues remaining unchanged.

Reports on the insolvency of Nikomart, an unlisted convenience store chain, prompted selling of supermarket chain operators. Teikoku Data Bank, a private credit research company, said Nikomart, whose debts totalled Y11.7bn, had been hit by excessive expansion. Jusco fell Y60 to Y1,890 and Seiyu lost Y40 to Y1,350.

Mining issues, which were beneficiaries of the rise in gold prices, lost ground on profit-taking. Sumitomo Metal Mining, the most active issue of the day, plunged Y30 to Y1,000 and Mitsui Mining and Smelting fell Y14 to Y501.

The oil sector was the strongest performer of the day, rising 1.08 per cent. Reports of a hike in wholesale oil prices encouraged some short-term investors, with Showa Shell Sekiyu up Y30 to Y1,050.

The strong performance of Steven Spielberg's movie Jurassic Park in the US boosted Toho Y1,000 to Y20,000. The movie theatre operator will distribute the movie in Japan this summer.

In Osaka, the OSE average fell 9.80 to 21,763.23 in volume of 18.5m shares.

Roundup

AFTERNOON recoveries after early falls were a pre-valent theme in the region.

HONG KONG trimmed big early losses after news of some progress in the Sino-British talks. The Hang Seng index closing only 48.56 lower at 7,014.08, 2.6 per cent lower on the week, after sliding more than 134 points earlier.

Turnover eased from HKDollars 4.78bn to HKDollars 4.24 bn. Trading focused on China related stocks or shell companies.

KUALA LUMPUR also recovered, the KLSE composite index closing 7.14 higher at 708.80, 3.6 per cent lower on the week, after losing 26.15 or 3.7 pct to 675.51 in the morning.

Malaysia has been one of the region's best performers this year, and analysts said that the market's sharp correction this week was healthy and would not disrupt its long-term uptrend.

SINGAPORE's Straits Times Industrial index closed 0.77 up at 1,771.67 after falling to an intra-day low of 1,721.97. Brokers said that falls in Malaysian shares over the counter had been far greater than in Singapore blue chips. Volume rose from 175.1m shares to 300.5m.

NEW ZEALAND saw a sharp rise in Telecom to a record high as the NZSE-40 index rose 14.15 to 1,655.29. Telecom rose 8 cents to a recond high of Dollars 3.10. Brokers said it was well bid in the US overnight but were unable to explain why it rose so far.

TAIWAN continued its technical rebound, the weighted index ending 50.11 or 1.2 per cent up at 4,182.28, just 0.8 per cent up on the week, as turnover expanded from TDollars 16.8bn to TDollars 20.2 billion.

Banking stocks attracted strong buying interest, the financial sector sub-index ending 2.7 per cent higher on the day, with First Commercial Bank surging TDollars 6 to TDollars 153 and Hua Nan rising TDollars 5.50 to TDollars 142.

BOMBAY's BSE index closed with a decline of 23.84 at 2,203.96, 0.5 per cent lower on the week. Brokers said that the volume of trade was limited, investors preferring to watch and wait as a fresh round of speculation began over the government's survival.

ANALYSTS fought a losing battle with dealers in the German equity market, while Switzerland continued to demonstrate its consistency, writes Our Markets Staff.

ZURICH continued to find support in the dollar, ending at its fourth all-time high of the week. The SMI index rose 12.1 to 2,348.2, 1.3 per cent up on the week.

Miss Michelle Doughty of Hoare Govette in London said that the market was also continuing to benefit from investors switching from other European markets.

Continuing hopes of easier interest rates and expectations of strong profit rises in banks boosted the market. CS Holding rose SFr30 to SFr2,640 and SBC SFr6 to SFr402.

Portfolio management banks were also in demand. Baer Holding added SFr60 or 4.5 per cent to SFr1,375 after Thursday's announcement that first-half profits would be above the level for the whole of 1992.

Richemont bearers, suspended for the previous two sessions, eased SFr20 to SFr1,370. An initially positive reaction to plans to reorganise its tobacco and luxury goods interests was countered by disappointment with its results.

FRANKFURT's DAX index rose 8.95 to 1,696.20, 0.5 per cent higher on the week, turnover falling from DM6.9bn to DM6bn. Its main winners were the banks, recouping some of their losses over the week as a whole.

Bayernhypo and Bayernverein, the most interest rate-sensitive in the sector, recovered DM7.50 to DM401, and DM5.50 to DM420.50. Commerzbank put on DM3.50 to DM298 and Deutsche Bank DM6 to DM682.20.

There was head-shaking over carmakers, winners over the week and strong again yesterday. Daimler rose DM3.50 to DM616.50 and put on another DM4 to DM620.50 after hours although its Mercedes-Benz unit forecast an operating loss for 1993.

PARIS was dampened down by profit-taking, but it still had its rising stars as the CAC-40 index ended 2.46 lower at 1,960.84 on the day, and 2.6 per cent higher on the week.

Turnover fell by FFr1bn to FFr3bn. Peugeot extended its gains on the week to FFr65, or 12.6 per cent with a rise of FFr19 to FFr582. Still in the automotive sector, Michelin put on FFr7.90 to FFr158.10 on the grounds that it was probably oversold.

Matra-Hachette, rose FFr4.50 to FFr139.50. Mr Jean-Luc Lagardere, the defence and communications group's chairman, repeated his expectation of 'significantly higher' net profits this year.

AMSTERDAM saw limited gains which took the CBS Tendency index 0.8 higher to 111.5, up 2.1 per cent on the week.

Philips rose 80 cents to Fl 29.20 after its German unit revealed lower 1992 net profits, and predicted break-even in 1994. A Fl 1.90 or 5.8 per cent rise to Fl 34.30 by Nedlloyd was attributed to reports that analysts were recommending the stock.

Nutricia, the baby and hospital food group, lost Fl 1.50 to Fl 132.50 after confirming rumours of a withdrawal of its powder baby foods across the US after a salmonella scare.

MILAN made little headway in thin turnover as investors awaited the outcome of labour negotiations. The Comit index dipped 0.20 to 534.43, little changed on the week.

Olivetti extended Thursday's gains, rising L55 to fix at L1,440 before L1,460 on the kerb on continued hopes that it will obtain a licence for cellular telephone operations.

MADRID ran into doubts that the Socialists will be able to form a coalition government and the general index closed 3.41 lower at 258.60, 2.3 per cent lower on the week.

Argentaria and Santander lost Pta75 to Pta4,625 and Pta 150 to Pta5,600 in banks and Cubiertas and Uralita shed Pta380 to Pta6,650, and Pta49 to Pta791 respectively in the more volatile construction sector.

COPENHAGEN continued its advance amid widespread expectations of further sizeable rises next week. The KFX index added 0.25 at 89.19, in turnover of DKr644m.

Moeller's D/S 1912 A and B shares both rose DKr1,000 to DKr109,000 and DKr108,500 respectively, while Danisco, the food, sugar beet and packaging group, ended DKr15 higher at DKr750.

------------------------------------------------------------------------ FT-SE ACTUARIES SHARE INDICES ------------------------------------------------------------------------ June 25 THE EUROPEAN SERIES ------------------------------------------------------------------------ Hourly changes Open 10.30 11.00 12.00 ------------------------------------------------------------------------ FT-SE Eurotrack 100 1196.14 1198.68 1200.35 1201.39 FT-SE Eurotrack 200 1249.18 1253.01 1252.48 1252.42 ------------------------------------------------------------------------ Hourly changes 13.00 14.00 15.00 Close ------------------------------------------------------------------------ FT-SE Eurotrack 100 1202.05 1202.26 1201.98 1202.12 FT-SE Eurotrack 200 1253.96 1254.69 1255.46 1254.67 ------------------------------------------------------------------------ Jun 24 Jun 23 Jun 22 Jun 21 June 18 ------------------------------------------------------------------------ FT-SE Eurotrack 100 1199.58 1197.17 1198.69 1193.31 1186.72 FT-SE Eurotrack 200 1251.56 1249.23 1253.34 1250.44 1242.58 ------------------------------------------------------------------------ Base value 1000 (26/10/90) ------------------------------------------------------------------------ High/day: 100 - 1203.25; 200 - 1257.48 Low/day: 100 - 1196.14 200 - 1247.81 ------------------------------------------------------------------------

GOLDS received a fresh boost which took the index 74 or 4.2 per cent higher to 1,855, for a weekly gain of 9.6 per cent. Industrials came back from highs to end 17 ahead at 4,713 while the overall index added 30 to 4,057.

NEW HIGHS (121).

BRITISH FUNDS (4) Cv. 9pc 2011, Tr. 9pc 2012, Tr. 8pc 2013, Tr. 8 3/4 pc 2017, OTHER FIXED INTEREST (2) Af. Dev. Bk. 11 1/8 pc 2010, Hydro Quebec 15pc 2011, AMERICANS (3) Lockheed, Merrill Lynch, Varity, CANADIANS (2) Can. Imp. Bk., Hawker Siddeley Can., BREWERS (1) Marston Thompson, BLDG MATLS (1) Sheffield Ins., BUSINESS SERVS (1) Chubb, CHEMS (1) BTP, CONGLOMERATES (1) Lonrho, CONTG & CONSTRCN (1) Allen, ELECTRICALS (1) BICC Cap. Fin. 10 3/4 pc Bds., ELECTRICITY (1) China Light, ELECTRONICS (4) Farnell, Forward, Kalamazoo, Polar, ENG GEN (4) Hill & Smith, Howden, Protean, Renold, FOOD RETAILING (1) Greggs, HEALTH & HSEHOLD (1) Whatman, HOTELS & LEIS (2) David Lloyd, Rank, INSCE BROKERS (3) Hogg, JIB, Lowndes Lambert, INSCE COMPOSITE (2) Mitsui Marine, Travelers, INV TRUSTS (37) Abtrust New Dawn Wts., Berry Starquest, City of Oxford Wts., Contra-Cyclical Cap., Euro Smaller Wts., Fidelity Euro. Values Uts., Do. Wts., First Spanish Wts., Fleming Emrg. Wts., Fleming Intl. High Inc., Foreign & Col. Ent., Gartmore Euro., Gresham Hse., Jupiter Euro., Do. Wts., Kleinwort Smllr., Melville St., Do. Wts., New Frontiers, New Zealand, Nth. Atlantic Smllr., Nth. Amer. Gas, Do. Wts., Oriental Smllr., Pantheon Intl. Part., Do. Wrts., SHIRESCOT, Schroder Split, Scot. Inv., Second Cons., Second Mkt., St. Andrew, Sth. Amer. Fd., TR Euro. Grth., TR Tech, Stpd. Pf., Do. Zero Div. Pf., MEDIA (3) Grampian A, Holmes Marchant, Pearson, MTL & MTL FORMING (1) Tinsley, MISC (1) Rothmans B, MOTORS (5) Appleyard, Central Motor Auctions, Gowrings, Henlys, Volkswagen, OIL & GAS (3) Aminex, Pict Petlm., Tullow, OTHER FINCL (5) BWD, Caledonia, Ed. Fd. Man., Lon. Forfaiting, St. James's Place Cap., OTHER INDLS (3) BTR Wrts. 1992/93, Do. Wts. 1994/95, Vinten, PACKG, PAPER & PRINTG (4) Bemrose, Capital Inds., Smith (David S), Wace, PROP (5) Bourne End, Grainger, Land Sec., Do. Deb. 2027, Do. Deb. 2030, STORES (4) Courts, Fine Art Devs., GUS A, Moss Bros., TEXTS (2) Dewhirst, Parkland A, TRANSPORT (2) All Nippon Airways, Dawsongroup, MINES (10) Anglo Amer. Gold, Hemlo, Kinross, Leslie, Navan, Do. 5pc Nts., Niugini, PosGold, Western Deep, Winklehaak.

NEW LOWS (27).

BRITISH FUNDS (4) Tr. 8 1/2 pc 1994, Tr. 10pc 1994, Ex. 13 1/2 pc 1994, Tr. 14 1/2 pc 1994, BREWERS (1) Greenalls 5.95pc Pf., BUSINESS SERVS (1) RCO, CONGLOMERATES (2) Bibby (J), Mosaic, ELECTRONICS (1) Pacer Systems, ENG GEN (1) Torday & Carlisle, FOOD MANUF (1) Assoc. Fisheries, HEALTH & HSEHOLD (2) Brit. Bio-Tech., London Intl., INV TRUSTS (2) Fleming High Inc., Do. Wts., MEDIA (3) Blenheim, Radio Clyde, Southern Radio, MISC (2) Cornwell Parker A, Cosalt, OTHER FINCL (1) Cambridge, PACKG, PAPER & PRINTG (3) Clondalkin, MR Data Man., Smurfit, TRANSPORT (1) BAA, MINES (2) MIM, Pasminco.

Other statistics, Page 11

VOLUME in tobacco group Rothmans International, relisted yesterday after a one-day suspension, rose to 7.1m shares, the highest daily total for five years, as the market digested plans by its parent company Richemont to reorganise its Rothmans, Cartier and Dunhill subsidiaries.

The shares jumped 20 to 743p immediately after being relisted but later fell back sharply to close 28 down at 692p on a mixture of profit-taking and cautious views of the group reorganisation.

One analyst suggested shareholders might even vote against the deal and said: 'The deal has benefits but there isn't much more value created by it.' Another market watcher simply said that closer examination of the deal showed the shares to be overvalued at current levels. Similar caution was registered by holders of Dunhill and the shares gave up 22 to 383p.

A WARNING from the UK chancellor of the exchequer that domestic taxes might have to be raised this autumn if the economic recovery fails to accelerate unsettled the London stock market yesterday. Share prices gave ground again but selling pressure remained light and the market steadied to hold on to the lower end of the new trading range which has emerged this week.

Mr Kenneth Clarke also indicated, in an interview with the Financial Times, that there was no immediate prospect of a further cut in UK base rates and that he would take no risks with inflation.

Although uneasy at the opening, the stock market left it to the stock index futures sector to set the pace for the day. An early fall in the September contract on the Footsie soon turned the underlying market downwards and by mid-session the index was down by 11.5. Distortions were caused by erratic movement in shares of Rothmans International as they returned from suspension following disclosure of details of the restructuring of Richemont, the Zurich-based parent.

Trading volume in equities was thin, however, and the market rallied from the day's low of 2,883.2, which was the top end of the trading range broken at the beginning of the week. By the end of the session, the FT-SE Index had recovered to 2,887.5, a net loss on the day of 7.2 points.

Seaq volume of 509m shares was focused on the Footsie list, with non-Footsie business dropping to only 54 per cent of the total. On Thursday, retail business was worth Pounds 1.14bn.

Market strategists remained confident that the Footsie has established itself in a new trading range based on the 2,800 area. However, the equity team at SG Warburg yesterday maintained its year-end forecast at 2,900, commenting that there was 'little sign yet' of the earnings upgrades which had been expected by the bulls.

The FT-SE 100 Share Index ended the week a mere 8.1 points up as fading hopes of reductions in German and UK interest rates took the heart out of a market encouraged at first by improvement in the latest UK economic data, especially the better employment figures.

The week also brought profit-taking in the second line stocks which had been outperforming the blue chips. Yesterday's fall of 2.6 put the FT-SE Mid 250 Index at 3,215.8, compared with the all-time peak of 3,218.5 reached on Monday.

COMMENTS from the UK chancellor on the budget deficit dashed any lingering hopes of a cut in interest rates and unsettled stock index futures, writes Joel Kibazo.

The opening of the September contracts on the FTSE-100 at 2,909, four points below its previous close, was the first indication of the effect of the chancellor's comments and by midday continuous selling in a thin market had driven September to the day's low of 2,901. Institutional business remained low but September managed to hold on to the premium through the session.

Having hovered around the 2,905 level for a few hours, sporadic bargain hunting saw the contract finish at 2,908, two points above its estimated fair value premium to cash of 11 points on poor volume.

Traded options ended the week in poor form. The last session of the week brought total volume of of 17,507 contracts. Most of that total came from activity in the stock options with Hanson leading the way with 2,104 lots, contracts followed Lonrho at 1,544.

THE downward trend in European interest rates was given a small boost yesterday, when the Portuguese central bank became the latest European bank to reduce its key money rate, writes Gillian Tett.

The Bank of Portugal cut its rate for absorbing money liquidity by 0.75 per cent to 10.25 per cent.

But in the wake of the political controversy that has surrounded the French and German authorities' plans for interest rate cuts, it was speculation about the Bundesbank's plans for interest rate cuts that continued to dominate European money markets.

Earlier in the week comments from Mr Edmond Alphandery, French finance minister, had fuelled speculation that Germany and France might be seeking a co-ordinated reduction in interest rates.

But Mr Theo Waigel, German finance minister, yesterday sought to squash these rumours.

With both Germany and France now facing mounting pressure for interest rate cuts, the mood in the markets yesterday remained fairly buoyant, with many traders still believing that the Bundesbank could cut rates next week.

Although some traders interpreted Mr Alphandery's actions this week as evidence of the French intention to cut interest rates irrespective of the Germans, others pointed out that the Bank of France could not sustain interest rates that were lower than German rates for long.

Amid the speculation and uncertainty, German futures drifted downwards amid a day of heavy trading, with the September contract for the Euro D-Mark closed at 93.10 per cent, around 13 basis points below its opening position.

The London markets remained fairly quiet, in spite of a statement yesterday by Mr Kenneth Clarke, the British chancellor indicating that the British Government had no plans for interest rate cuts.

'Although there were a lot of hopes about a rate cut earlier, that has all really faded now,' explained one dealer, who predicted that the British money markets were now 'in for a long, boring summer,' with technical factors serving as the main reason for market movement.

After forecasting a shortage of 1.35bn, the Bank of England later removed almost all of this during the course of the day.

THE YEN shot back into the spotlight again yesterday after it staged a sharp early rally against the dollar, and reached a new post war high against the D-Mark, writes Gillian Tett.

In the Far East markets, the dollar fell below the Y107 level, down from a New York close of Y108.7 in spite of repeated intervention by the Bank of Japan.

Although the dollar later rallied in European trading, closing at Y109.2, the yen continued to strengthen against most European currencies.

Most traders yesterday said that the yen's recovery against the dollar had been widely expected, in light of its rapid weakening this week. However opinions remained divided about how much further the dollar would fall.

Most dealers yesterday said that the main reason behind the yen's rally was the growing confidence in the market that the elections in Japan were unlikely to lead to major political change in the country.

'The weakness we saw earlier was really due to temporary political factors,' said Mr Neil MacKinnon, chief economist at Citibank.

But with most traders continuing to insist that they were bullish about the underlying strength of the dollar, the consensus was that the dollar was unlikely to fall as low as the Y105 mark that it reached earlier this month.

In Europe the D-Mark reached a new low of Y62.25, down from Y63.79 the previous day.

In spite of edging up against the dollar and French Franc, the D-Mark continued to look weak against most European currencies.

Nevertheless, some dealers yesterday insisted that in light of the recent political developments between the French and German finance ministries, the main spotlight in the European currencies over the coming days was likely to be the French franc.

Speculation that the Bank of France might be planning to push ahead with interest rate cuts, in spite of the refusal of Mr Theo Waigel, the German Finance Minister, to agree to concerted interest rate cuts, weakened the franc. It finally closed at FFr3.378 down from FFr3.363 on the previous day.

'The markets are very nervous about the franc now,' said Mr Jim O'Neill, economist with Swiss Bank, who predicts that the Franc could soften to FFr3.395 in the near future.

Meanwhile, a statement from Mr Kenneth Clarke, the British chancellor of the exchequer, indicating that the government would not implement any further rate cuts, helped to strengthen sterling against the D-Mark. It closed at DM2.515, up from a previous day's close of DM2.5125.

NORTHERN Telecom sent a shock wave through the telecommunications equipment industry late yesterday by forecasting a second-quarter loss and a significant drop in earnings for 1993 as a whole.

The Toronto-based company also announced the replacement of its chairman Dr Paul Stern by Mr Bradford Butler, a former chairman of Procter & Gamble, the US consumer goods group. Dr Stern stepped down earlier this year as Northern's chief executive. Mr Butler is a Northern director.

Northern said the second-quarter loss mainly reflected unexpectedly weak sales of public switching equipment and slimmer margins.

It said revenue growth in most European and North American markets had been weaker than expected. A spokesman singled out lower capital spending by US regional telephone companies and by Bell Canada.

Northern's first-quarter earnings of USDollars 75.9m were 27 per cent lower than a year earlier, although revenues edged up 2.3 per cent to Dollars 1.94bn.

When the first-quarter results were published less than two months ago, Mr Jean Monty, who replaced Dr Stern as chief executive, predicted that results for the rest of the year would be similar on a quarter-by-quarter basis to 1992. Second-quarter earnings last year were Dollars 72.3m.

Trading in Northern's shares was halted in Toronto and New York shortly before yesterday's announcement. They last traded at CDollars 47.38 in Toronto. Northern is 53 per cent owned by BCE.

DIRECTORS of Northwest Airlines' parent company met in Minneapolis yesterday amid rumours they could put the carrier, the fourth largest in the US, into bankruptcy if labour concessions were not secured.

The meeting will reconvene on Monday by teleconference. Northwest, in which KLM Royal Dutch Airlines holds a minority stake, has borrowings of well more than Dollars 4bn.

It faces a demanding debt repayment schedule over the next few years, and has been trying to persuade its bankers to reschedule payments on the condition that it delivers labour concessions worth about Dollars 300m a year over the next three years.

Northwest offered a 30 per cent equity stake to unions as part of the deal and has reached agreement with unions representing its machinists and flight attendants. However, two weeks ago, the rank-and-file machinists voted against the deal. The other key labour group - the pilots - has never reached agreement with the company, although talks have been continuing this week.

If the bankruptcy threat becomes reality, Northwest would be the sixth large US carrier to have entered Chapter 11 since 1990.

MR VAUGHN Bryson resigned yesterday as chief executive of US pharmaceuticals group Eli Lilly because of clashes with its board and was replaced by Mr Randall Tobias, the vice-chairman of American Telephone & Telegraph and head of its international operations.

Lilly said Mr Bryson, who is 54 and had only been chief executive for 20 months, had decided to retire because of 'differences with the board over management philosophy.'

A company spokesman declined to elaborate, but Lilly - best known for Prozac, the world's top-selling anti-depressant drug - has been plagued by problems over the past year, leading to disappointing financial results.

The company's stock rose on yesterday afternoon's news as analysts speculated that Mr Tobias might be more successful in solving its difficulties. The shares closed at Dollars 51 1/4 , up Dollars 1 7/8 , in trading on the New York Stock Exchange.

Mr Tobias, 51, has been an outside director of Lilly since 1986. He will also take over as chairman of the group from Mr Richard Wood, who retired as chief executive in 1991 but stayed on as chairman.

Mr Tobias, who was elected vice-chairman of AT&T in 1986, has been with the telecommunications group throughout his career, apart from two years in the army.

He has been a long-time close associate of the telecommunications group's chairman, Mr Robert Allen, who was his first supervisor when he joined AT&T in 1964. AT&T has yet to decide how to fill his positions.

Mr Tobias has played an important role in AT&T's recent push to become a much broader communications and computer business and a more important international presence. He has been chairman of its AT&T international subsidiary since 1991.

Lilly's recent problems have included new competition for Prozac, its primary engine of growth; a shutdown at an emergency heart defibrillator plant when the Food and Drug Administration found production defects; and a mix-up in regulatory filings over a cardiac catheter. Last October it reported its first quarterly loss since 1951, when it started to report results publicly.

EMAIL, the Australian white goods and building products group, is to pay ADollars 326.5m (USDollars 220.3m) for a number of buildings products businesses from National Consolidated (NCL), writes Bruce Jacques.

NCL, part of the troubled Adsteam group, said the sale price would yield a book profit of about ADollars 132m. This would be used to reduce borrowings.

Email said the businesses acquired were expected to have sales of ADollars 310m, and earnings before interest and tax of ADollars 28m. The deal will lift Email's turnover to around ADollars 1.8bn.

MR JEAN Peyrelevade, chairman of Union des Assurances de Paris (UAP), France's biggest insurance group, yesterday said the company was on course for a 'significant increase' in profits this year in preparation for privatisation.

He said 1993 should mark a 'significant step' in UAP's recovery, although he cautioned it did not expect to reach 1990's net profits of FFr4bn (Dollars 695m).

UAP, which suffered a steep fall in net profits to FFr1.08bn in 1992 from FFr3.77bn in 1991, is one of 21 state-controlled companies scheduled for sale to the private sector by France's new centre-right government.

Mr Peyrelevade has been making strenuous efforts to ensure that UAP will be one of the first privatisation candidates.

The improvement in UAP's performance could play an important part in Mr Peyrelevade's plans. Assurances Generales de France (AGF) and GAN Group, the other state-controlled insurers, are also scheduled for sale.

AGF is regarded as UAP's chief competitor in the privatisation stakes. GAN this week warned it had to resolve the problems of its loss-making damage division before being sold.

BENETTON, Italy's best-known clothing group, is re-jigging some of its short-term borrowings to cut interest costs in a surprise series of innovative financing deals.

The company's net borrowings totalled L325bn (Dollars 215.66m) at the end of last year.

The deals will start next month with a L200bn bond issue targeted at international institutional investors. The issue, which comes with warrants for Benetton shares, will be launched between July 10 and July 15, with a coupon of between 4.5 and 5 per cent.

It will be followed in September by a L150bn syndicated loan from a pool of Italian banks, and an innovative L100bn domestic bond with warrants indexed to four leading stock indices.

The equity-linked issue, similar to other recent transactions, would allow investors to hold the bond but detach the warrants, indexed to the US, German, French and Japanese markets, if share prices were rising sharply. It will be launched in October and will have a minimum coupon of 7 per cent.

CREDIT Local de France, the French banking group, yesterday said its FFr4.2bn (Dollars 750m) sale of state-owned shares had been heavily over-subscribed, writes Alice Rawsthorn.

The domestic tranche drew applications for 113m shares, or 17 times the number available. The international tranche generated applications for seven times the 4.4m shares allocated to foreign investors. Some FFr2.4bn will go to the government, while FFr1.8bn will go to Caisse des Depots, the public-sector financial institution which sold the rest of the shares.

Pepper markets at origin were inching higher, reports Man Producten, while in Europe and the US they were markets fully steady and active. Small crop estimates from the Far East were pushing up the Malabar levels, where farmers are content to hold stocks. Exporters in Malaysia and Indonesia saw shrinking supplies and a steadier demand, which was stirring up prices. Among the white peppers Muntok spot was at Dollars 1,950 a tonne, June/July at Dollars 1,830 and July/August at Dollars 1,845. In the black pepper market Sarawak black label spot was at Dollars 1,200 and June/July at Dollars 1,150.

MR JEAN Peyrelevade, chairman of Union des Assurances de Paris (UAP), France's biggest insurance group, yesterday announced the company was on course for a 'significant increase' in profits this year in preparation for privatisation.

He said 1993 should mark a 'significant step' in UAP's recovery, although he cautioned it did not expect to reach 1990's net profits of FFr4bn (Dollars 695m).

UAP, which suffered a steep decline in net profits to FFr1.08bn in 1992 from FFr3.77bn in 1991, is one of the 21 state-controlled companies scheduled for sale to the private sector by France's new centre-right government.

Mr Peyrelevade, whose position is seen as vulnerable because of his close links with the previous government and a recent row with the Suez group over UAP's attempts to win control of Colonia, a German insurer, has been making strenuous efforts to ensure UAP will be one of the first privatisation candidates.

The improvement in UAP's performance could play an important part in Mr Peyrelevade's plans. Assurances Generales de France (AGF) and GAN Group, the other state-controlled insurers, are also scheduled for sale.

AGF is regarded as UAP's chief competitor in the privatisation stakes. GAN this week warned it had to resolve the problems of its loss-making damage division before being sold.

UAP has addressed the problems of its insurance business by raising tariffs and exercising greater scrutiny over new policies. It also expects this year to reduce the losses of Banque Worms, its banking subsidiary which in 1992 was badly affected by the property crisis.

Schneider, the electrical engineering and construction group, plans to restructure its ownership later this year by being absorbed by SPEP, its parent company, in a share swap. SPEP will offer 10 of its shares for seven Schneider shares. The change forms part of Schneider's debt-reduction programme.

Schneider expects to make disposals of non-core assets worth FFr1.5bn in 1993, an executive said.

THE Japanese market is an open market to be compared with any other car market in the world. The issue of whether the Japanese market is closed or open is a kind of a yesterday question,' says Mr Hans-Olov Olsson, president of Volvo Japan.

So what is it about the Japanese car market which has kept foreign penetration to less than 3 per cent, while Japanese makers enjoy a 12 per cent share of markets in Europe and nearly 30 per cent in the US?

In Mr Olsson's experience, the answer lies in the history of domination by Japan's domestic manufacturers rather than any current formal barriers. It is also consumers' high quality standards and the need for long-term thinking that challenge the western manufacturer hoping to penetrate the Japanese market.

Local domination for decades has ensured that domestic companies have cornered the best dealership sites, making it difficult for foreign companies to gain access to the most important distribution networks.

When Volvo tried to form dealerships it ran up against a system of quotas that officially limits the number of dealerships allowed in any given area of Japan. Such obstacles meant Volvo needed to make a large, long-term financial commitment to the market.

In its years in Japan, Volvo has moved from a joint venture operation with a Japanese company to establishing a wholly-owned subsidiary in 1986. Today it has its own retail operations, which account for 30 per cent of sales in Japan.

The bulk of sales, however, comes from independent dealers. These provide 50 per cent of the company's Japanese revenues. A joint venture with Fuji Heavy Industries brings in a further 17 per cent. 'We have spent a lot of money in building up a network and in developing products for the Japanese market,' Mr Olsson says.

Volvo has also had to improve quality standards to meet the high expectations of Japanese consumers. In Japan, it is a basic condition that cars have to have automatic gear boxes, air conditioning, radio systems, electric windows and right-hand drive.

Japanese consumers are hard to please. They do not accept bad painting, spills, dust or poor fittings. 'If you fail on this today there is no chance,' Mr Olsson says. 'This market is so demanding that if you fail you really fail. You really have to feel yourself a samurai and fight.'

Volvo's rewards so far have been promising. In the past eight years, the company's registrations have increased from 1,046 cars to 8,628 last year, when sales fell in line with the decline of the Japanese market. In 1990, registrations peaked at 10,915 units.

Volvo is aiming for sales of 10,200 this year. Mr Olsson believes the company's reading of the market was correct and that the current surge of interest in estate cars in Japan will help it achieve that target.

In 1986 Volvo did not sell any estate cars. Today they represent 60 per cent of sales.

'Once you have built trust, I think you are rewarded. Then the Japanese customer will stay with you and support you,' Mr Olsson says.

BENETTON, Italy's best-known clothing group, is re-jigging some of its short-term borrowings to cut interest costs in a surprise series of innovative financing deals.

The company's net borrowings totalled L325bn (Dollars 215.66m) at the end of last year.

The group took on a substantial amount of high-cost borrowing when it gained control of four local clothing manufacturers last year.

The deals will start next month with a L200bn bond issue targeted at international institutional investors. The issue, which comes with warrants for Benetton shares, will be launched between July 10 and July 15. It will carry a coupon of between 4.5 and 5 per cent.

The issue will be followed in September by a L150bn syndicated loan from a pool of Italian banks, and an innovative L100bn domestic bond with warrants indexed to four leading stock indices.

The equity-linked issue, similar to other recent transactions, would allow investors to hold the bond but detach the warrants, indexed to the US, German, French and Japanese markets, if share prices were rising sharply.

The equity-linked issue, to be launched in October, will have a minimum coupon of 7 per cent, Mr Marco Polo, finance director, said.

Last year Benetton managed to shrug off the effects of the downturn in world-wide consumer spending and increase 1992 net profits by 12 per cent, to L184.7bn, on sales of L2,512bn.

BHP, the Australian resources company, more than doubled net earnings for the year ended May, following strong contributions from all divisions and a hefty turnround for abnormal items.

The company yesterday reported a 132 per cent increase in attributable profit, to ADollars 1.19bn (USDollars 804m), on an 11.5 per cent revenue lift to ADollars 16.7bn. The dividend is being held at 40.5 cents a share.

The bulk of the earnings upturn came from abnormal items. In 1991-92, BHP wrote down the value of its investment in the Foster's Brewing group by ADollars 312m, but in the latest year it recorded a ADollars 203.8m tax benefit.

Excluding abnormals, BHP reported a 19.8 per cent earnings rise to ADollars 991m. The results were helped by a weaker Australian dollar, which averaged USDollars 0.71 on BHP sales, compared with USDollars 0.77 in the previous year.

The steel division emerged as the company's best profit improver, lifting profit before abnormals by 28 per cent to ADollars 242.5m. BHP said a full-year contribution from New Zealand Steel, higher domestic sales, and lower costs helped.

The petroleum division lifted profit 21.1 per cent to ADollars 461.4m, reflecting higher production and lower exploration expenditure.

The minerals division remained BHP's biggest absolute contributor, in spite of a marginal 3 per cent profit increase, to ADollars 672.9m. Record output helped to overcome lower prices, BHP said.

The service companies lifted their profits contribution by almost 75 per cent to ADollars 75.8m, mainly reflecting increased dividends from the Foster's Brewing investment.

The result followed an increase in depreciation provision, from ADollars 1.22bn to ADollars 1.38bn, largely resulting from full ownership of New Zealand Steel and the opening of several new operations.

Interest expenses eased marginally, from ADollars 558.9m to ADollars 556.5m, and tax took ADollars 596m, against ADollars 738.7m previously.

CREDIT Local de France, the specialist French banking group, yesterday announced that its FFr4.2bn (Dollars 750m) sale of state-owned shares had been heavily over-subscribed by French and foreign investors.

The success of the CLF sale is encouraging for the government's ambitious privatisation plans. The government had regarded the sale as an important test of the stock market's appetite for state assets. The first round of privatisations, including Banque Nationale de Paris and Air France, is scheduled to start in early September.

The domestic tranche of the CLF issue, which involved the sale of 6.5m shares, attracted applications for 113m shares, or 17 times the number available.

The international tranche was also over-subscribed, generating applications for seven times the 4.4m shares allocated to foreign investors.

Some FFr2.4bn of the money raised by the CLF sale will go directly to the government - the first contribution to the FFr40bn that Mr Edouard Balladur, prime minister, hopes to raise from privatisations in 1993. The remaining FFr1.8bn will go to Caisse des Depots, the public-sector financial institution, which sold the rest of the shares.

EMAIL, the Australian white goods and building products group, is to pay ADollars 326.5m (USDollars 220.3m) for a number of buildings products businesses from National Consolidated (NCL).

NCL, part of the troubled Adsteam group, said the sale price, which was subject to adjustments, would yield the company a book profit of about Dollars A132m. This would be used to reduce borrowings.

The NCL divisions, which have been on the market for some months, include a number of prominent building product brands. Email said the businesses acquired were expected to have sales of Dollars 310m, and earnings before interest and tax of Dollars 28m.

The businesses to be sold are Dorf Industries, Ogden Industries, Whitco, Aluminium Extrusions, Australian Die Castings, Luke & Singer, and Extruded Metals.

The deal will lift Email's turnover to around ADollars 1.8bn. The effect on profitability and earnings per share is expected to be positive from the beginning, Email said.

MR RUPERT Murdoch's bid to enter Asian broadcasting is in doubt after China yesterday questioned the wisdom of allowing him to buy 22 per cent of Television Broadcasts (TVB), Hong Kong's leading broadcaster.

The semi-official China News Agency (CNA) warned the Hong Kong government that careful research was needed to determine if the public interest would be affected by Mr Murdoch's purchase of TVB.

'Since it is the general policy of the Hong Kong government to restrict media cross-ownership, deep thought is required before any decision is made,' CNA said.

TVB's licence, which is valid until 2000, comes up for periodic review next year. China may well argue that, as the licence is a form of franchise, any change in TVB's ownership ought to be the subject of Sino-British talks.

The entry of China into the Hong Kong government's determination of the purchase has cast a cloud over News International's HKDollars 1.85bn (USDollars 239m) offer, unveiled earlier this month. It complicates the already difficult regulatory hurdles Mr Murdoch has to overcome in order to win government approval.

To take up his 22 per cent of TVB, Mr Murdoch needs three exemptions from Hong Kong's broadcasting law.

The first is the restriction the law makes on foreigners' voting rights. Currently foreign shareholders in a television licensee can vote only up to 10 per cent of a company's stock, even if their share-holding exceeds 10 per cent.

Mr Murdoch also needs approval from Hong Kong's Executive Council, or quasi-cabinet, to own more than 15 per cent of a television licensee.

Furthermore, he needs an exemption from the limits on shareholder ownership in television companies.

News International's purchase of TVB also comes at a time when Hong Kong regulators are drafting tougher cross-ownership regulations. If enacted, these would make it impossible for the owner of newspapers in Hong Kong to control a television station.

Mr Murdoch currently owns the South China Morning Post, Hong Kong's leading English-language newspaper, and the Wha Kiu Yat Po, a Chinese-language newspaper.

WICKES announced that SG Warburg has arranged for the sale to Hass Corporation of 1.875m warrants to subscribe ordinary 25p shares of Wickes at a price of 23 1/2 p per warrant. Mr Henry Sweetbaum, chairman and chief executive of Wickes, has an interest in Hass.

WARNER HOWARD Group has acquired the assets and liabilities of a portfolio of catering equipment rental agreements from Gerard Gamble Group for Pounds 1.02m cash.

SHEFFIELD INSULATIONS: Valid acceptances have been received for 36.1m new ordinary shares, including the 20.1m which were placed firm, offered in its rights issue. This represents 97.8 per cent of the shares provisionally allotted.

SELECTV: Mr Michael Buckley no longer has a notifiable interest in the company's equity.

OLIVES PROPERTY: Open offer of 9.76m new ordinary shares has closed. Kent Holdings, AP Grant, the trustees of the AP Grant family trust and GM Leigh irrevocably undertook to take up 4.93m shares not placed subject to recall and in addition, valid applications were received for 3.03m shares (62.8 per cent). Of remaining shares, 1.775m have been placed with institutional and other investors and 20,616 have been subscribed by Albert E Sharp, in each case at open offer price of 28p per share.

LEIGH Interests has acquired Bondfleet, a Coventry-based company involved in deep sewer cleaning. Consideration is Pounds 700,000 in 348,259 shares.

HEADLINE BOOK Publishing: At the first closing date in its offer for Hodder & Stoughton Holdings, acceptances had been received in respect of 432,853 shares (96.16 per cent)

HARMONY LEISURE Group: Of 39.91m rights issue shares offered, acceptances have been received in respect of 33.18m shares (83.1 per cent).

EFG says 17.7 per cent of the recent rights issue was taken up. Sub-underwriters will be required to take up some 85 per cent of their commitment.

BROMSGROVE INDUSTRIES has acquired Lilleyman, a precision forger and machinist of orthopaedic and surgical products for Pounds 800,000 in cash and shares.

ARMOUR TRUST has bought Jenolite, the retail division of Permalite, from Satra for Pounds 185,000 cash.

EUROPEAN ZINC producers' announcements this week of planned production cuts appeared to emphasise the present malaise of the oversupplied market, rather than encourage the view that a better balanced was on the way.

As London Metal Exchange warehouse stocks of the metal rose another 10,350 tonnes to a record 688,025 tonnes the exchange's three months delivery price surrendered Dollars 4 of last week's tentative recovery to close yesterday at Dollars 945.50 a tonne, Dollars 12 above the recent six-year low.

A hesitant rally was prompted on Monday by news that desperate European producers were preparing for submission to the European Commission a proposal for a co-ordinated industry scheme under which one or two producers would close smelting capacity permanently and be compensated for closure costs by the rest of the industry. But the price gains were wiped out the next day.

There was a similarly muted reaction to Thursday's statement by Mr Jean-Pierre Rodier, chief executive of Union Miniere of Belgium, that his company wanted to give up its role as the world's biggest zinc producer.

At a meeting in London with mining analysts he said a planned expansion at the Balen refinery in Belgium had been cancelled and outlined plans to sell over the next five years the company's refineries and mines in the US and Sweden. Late last year UM permanently closed its 100,000-tonnes-a-year refinery at Overpelt in Belgium.

Nickel traders were also inclined to take a jaundiced view of apparently bullish news. Until yesterday, a run of LME stocks falls was being dismissed as a temporary phenomenon resulting from bureaucratic delays to Russian shipments, and a fresh surge of arrivals was predicted. So prices remained under pressure and the LME's three months position sank early yesterday to a fresh seven-month low of Dollars 5,340 a tonne.

The announcement yesterday, however, of a further 1,842-tonne stocks fall, taking to 9,792 tonnes the total drawdown since the June 8 record of 96,312 tonnes, seemed to bring a change of heart. As some of them became sceptical about the long-awaited flood of Russian material traders marked nickel prices higher and the three months position closed at Dollars 5,425 a tonne, up Dollars 5 on the day but still Dollars 200 down on the week.

The tin market's technical rally from recent 20-year lows ran out of steam this week and in late trading yesterday the Dollars 5,000-a-tonne support level for the LME three months contract was coming under increasing pressure. It closed at Dollars 5,027.50 a tonne, down Dollars 212.50 on the week. The market is weighed down at present by expectations of increased deliveries to an already oversupplied market as producers' resolve on export restraint evaporates.

The copper market remained trapped in its narrow dollar range, though the weakness of the pound created the illusion of firmness in the LME's sterling denominated market, where the three months position closed yesterday at Pounds 1,284.75 a tonne, up Pounds 38.50 on the week.

The market failed in repeated attempts to break decisively through the Dollars 1,900 barrier, but concern about US labour contract expiries at the end of the month ensured that the Dollars 1,850-a-tonne price floor also remained intact.

LME copper stocks ended a long run of rises yesterday, but the 750-tonne fall was less than many traders had been expecting and did little to encourage buying.

The only genuinely firm LME contract was aluminium, which benefited from constructive chart patterns and persistent rumours that a large smelter closure was to be announced soon.

An early attempt push the three months price through resistance at Dollars 1,215 a tonne was unsuccessful, but after a quick shake-out in mid-week that barrier fell and the price yesterday touched a 3 1/2 -month high before closing at Dollars 1,229.50 a tonne, up Dollars 24.75 on the week.

At the London bullion market the gold price, depressed by the dollar's strength and producer selling in Canada, Australia and South Africa, where the present price level is relatively attractive in local currency terms, slid in the early part of the week towards the bottom of its recent trading range. But having failed to drive the price below Dollars 366 a troy ounce speculative sellers switched tactics on Thursday and became enthusiastic buyers. The price gained Dollars 5.80 on that day and another Dollars 2.65 yesterday to end Dollars 4.20 up on balance at Dollars 376.45 an ounce.

One dealer had told the Reuter news agency earlier in the day that a close above Dollars 375 an ounce in New York could signal an assault on the Dollars 380 barrier next week.

At the London Futures and Options Exchange (Fox), which this week announced that it was to revert to its former name of the London Commodity Exchange, the cocoa market put in a much more active performance - Tuesday's volume was a record 46,458 lots of 10 tonnes. A continuation of last week's technical rally lifted the September futures price to a three-month high of Pounds 741 a tonne before a technical correction trimmed it to Pounds 727 at yesterday's close, up Pounds 12 on the week.

Dealers thought the upsurge in activity might foreshadow a deliberate supply squeeze. 'September is the traditional month for squeezes and that is exactly what we have here. And if you want to go for September, then you have to go all out for July,' one trader told Reuter.

-------------------------------------- LME WAREHOUSE STOCKS (As at Thursday's close) -------------------------------------- tonnes -------------------------------------- Aluminium +5,675 to 1,883,000 Copper -750 to 455,375 Lead -200 to 258,725 Nickel -1,842 to 86,520 Zinc +7,400 to 688,025 Tin +385 to 20,490 --------------------------------------

TGI, which concentrates on the design and manufacture of loudspeaker products, suffered from the difficult trading conditions in the UK and Far East, and saw its pre-tax profit decline 31 per cent in the year ended March 31 1993.

The result amounted to Pounds 409,000 compared with a previous Pounds 597,000 and was achieved from turnover of Pounds 34m (Pounds 35.6m).

The profit included Pounds 1m surplus on the sale of investment in Goodmans Industries, Pounds 129,000 release of provision for closure costs of Xylo, less closure costs of Audix broadcast activities. Interest charges were cut to Pounds 418,000 (Pounds 690,000).

Continuing activities produced Pounds 33.7m (Pounds 32.4m) turnover and Pounds 997,000 (Pounds 1.28m) operating profit in very tough market conditions, said Mr Norman Crocker, chairman.

Improved market conditions could be detected in some parts of the business, and new products had been launched or planned.

Costs had been reduced further and, provided the OEM volumes continued to hold up, 'we have the ingredients for good profit growth in the current year', he told shareholders.

After a tax credit, earnings per share were given as 2.9p against 2.5p while the final dividend is 1p making a total of 1.5p (1p).

TODAY: Russia's Constitutional Assembly reconvenes in Moscow.

SUNDAY: Informal meeting of the European Community agriculture council in Kolding, Denmark.

MONDAY: European Community environment ministers meet in Luxembourg. Mr Boutros Boutros-Ghali, UN secretary general, opens month-long session of UN economic and social council in Geneva. Organisation of African Unity holds summit conference in Cairo (until June 30). Financial Times holds conference 'Opportunities in product take-back and recycling' at Petersberg, near Bonn. Preliminary results from Seeboard.

TUESDAY: US consumer confidence (June); new home sales (May). Mr Chris Patten, governor of Hong Kong, flies to London for talks with Mr John Major, prime minister, and Mr Douglas Hurd, foreign secretary (until July 2). Mr Michio Watnabe, Japanese foreign minister, visits Seoul. European Community monetary committee meets in Brussels.

WEDNESDAY: Central Statistical Office publishes monthly digest of statistics (June) and economic trends (June). US gross domestic product (final-first quarter; factory orders (May). Mr Boris Yeltsin, Russian president, arrives in Athens for three-day visit. Two-day Asian-Pacific green conference opens in Tokyo. European Community research ministers meet in Luxembourg. Old-style 10p coin ceases to be legal tender.

THURSDAY: Cyclical indicators for the UK economy (April-third estimate). US jobless claims; NAPM (June); personal income (May); construction spending (May). Belgium takes over presidency of the European Community council of ministers. New Zealand budget. Nordic prime ministers meet in Reine, Norway. Association of Lloyd's members annual conference in London.

FRIDAY: UK official reserves (June). US unemployment (non-farm) (June). Extraordinary meeting of European Community foreign ministers in Brussels

THE SECOND half at Arthur Shaw, manufacturer of builders' hardware and supplier of engineering products, showed an upturn in all activities, and the group cut its loss from Pounds 410,000 to Pounds 99,000 in the year ended April 4 1993.

That was after exceptional charges of Pounds 221,000 (Pounds 113,000), so the group traded at a profit of Pounds 122,000 (loss Pounds 297,000) from turnover of Pounds 16.8m (Pounds 15.7m).

The exceptional item included Pounds 175,000 of various costs relating to the extraordinary meeting called by rebel shareholders in February and subsequent management changes.

Mr Brian Phillips, the new chairman, said the board had continued with a programme of severe cost cutting and management rationalisation. All divisions had implemented plans to expand sales, improve margins and enter new markets.

He was conscious of the current financial position and steps were being taken to reduce borrowings and gearing. Asset disposals were under constant review.

The manufacturing division had gained substantial additional business in the window hardware sector through increased market share, new products and improved demand.

Losses per share were reduced to 1.58p (3.33p). There is no dividend against an interim of 1.3p.

A CREDITABLE performance by London International Group's health and personal products business was offset by a fall into losses in the photoprocessing division, leaving annual profits down from Pounds 39.4m to Pounds 32.5m before exceptional costs.

These costs were much reduced, though, at Pounds 4.7m (Pounds 22.5m). That left the pre-tax profit for the year ended March 31 1993 at Pounds 27.8m, up from Pounds 16.9m.

Exceptional items covered the closure of some photoprocessing facilities and reorganisations costs within the health and personal products side.

The group said it had no further comment to make on the episode last month when it was censured by the Stock Exchange for warning some analysts and shareholders that profit forecasts were too high.

The result was at the lower end of revised expectations, and the shares fell 6p to 176p.

Mr Tony Butterworth, chief executive, said it was frustrating to have the distraction of the photoprocessing losses when the health and personal products activities - including condoms, toiletries, surgeons gloves and household gloves - represented 90 per cent of group assets.

Turnover rose 4.5 per cent to Pounds 416m (Pounds 398.1m) and operating profits were slightly down at Pounds 47.5m (Pounds 48.6m).

Within that the health and personal products activities increased profits by 20 per cent to Pounds 51.4m, with margins rising from 15.4 to 17.5 per cent, but photoprocessing losses of Pounds 3.9m replaced profits of Pounds 5.9m.

Mr Butterworth said lower volumes and prices had hit ColourCare, the photoprocessing business, and there was overcapacity in the industry. LIG aimed to be the lowest cost processor and several million pounds of costs had been cut from the business.

The benefits of that would be seen in the current year. The acquisition of SupaSnaps had given the group nearly 30 per cent of the UK market, he said.

He said once recession ended the business was well placed to earn good returns. The group would then take a strategic look at it which could result in its sale or retention. The European industry was consolidating along the lines of the US and UK industries, he said.

Meanwhile, the group's main business had proved resilient to recession in the UK and US. He struck a note of caution though as markets in Germany, Spain and Italy were now going into recession which could restrict sales growth.

Geographical expansion was an important element of growth. In March the Durex brand was launched in China.

The group reckons to have 35 per cent of the world market for branded condoms. He said the Monopolies and Mergers Commission, currently looking into pricing of condoms in the UK, was expected to report next February.

Biogel surgeon's gloves, launched in the US three years ago, had now got a 24 per cent share of the US market by value. However, a reduction of stock in the distribution pipeline had held back sales.

Interest charges rose from Pounds 9.2m to Pounds 15m reflecting higher borrowings and interest rates in countries where LIG borrows to hedge assets, such as Italy. Year-end net debt was Pounds 128m

Mr David Harbut, the finance director, said the business had been close to generating cash before acquisition and exceptional costs and these costs would be reducing now. Cash generation to reduce debt was a priority, he said.

See Lex

TODAY, the centenary running of the Northumberland Plate, 'the Pitman's Derby' at Gosforth Park, is an historic high point for the quoted company which has owned and run the Newcastle racecourse since 1882.

But despite this afternoon's celebrations, enhanced by a visit from the Queen, these are worrying times for High Gosforth Park plc.

The green belt designation of the racecourse's entire 800 acre site, acquired by High Gosforth Victorian founders 'to promote sport in a proper fashion and get a fair return for their trouble and outlay' is proving a stumbling block to the property development plans on which the company's, and the racecourse's, future depend.

High Gosforth Park this month declared a Pounds 21,000 pre-tax loss for 1992, on turnover of Pounds 1.13m. The loss at the operating level was Pounds 62,000.

Mr David Parmley, the managing director and clerk of the course, said that over the last decade the company's retained annual profit averaged about Pounds 20,000. Its reserves stood at only Pounds 100,000.

Despite its verdant setting and imposing listed buildings, the course, which offers the only grade one racing between York and Ayr, is being run on a shoestring. Essential maintenance bills are a constant worry.

'It's clear to anybody if this company doesn't get a lot of money quickly it's down the pan,' said Mr Parmley. Only five of Britain's 59 racecourses were making money from horse racing, he added. Many made ends meet by car boot sales and land development.

High Gosforth Park argued at a public inquiry last year for planning permission for housing and office development on several pockets of its land. Sale of sites with planning permission would raise about Pounds 4.4m, which it has pledged to plough back into improvements to course facilities and refurbishment of its listed buildings.

The inquiry inspector recommended approval for nearly all the plans. But in May Mr Michael Howard, then environment secretary, indicated he was minded to reject the housing and offices, while supporting other elements. The company was invited to comment. It is now hoping his successor, Mr John Gummer, may accept its arguments for green belt development.

Without it, the future for Gosforth Park, ranked 12th and 14th respectively on the levy board's flat and jump merit tables, was very bleak, said Mr Parmley.

Its quoted status, unusual in British horse racing, is of little assistance. A rights issue would be 'nonsensical', he said, given that the shares, quoted at Pounds 35 each, passed the 1992 dividend and paid only 15p the year before. Trading in the 90,960 issued shares is moribund.

The company has support, including sponsorship, from substantial regional companies. The non-executive directors of High Gosforth Park include several of the north east of England's great and good.

Scottish & Newcastle is putting up Pounds 35,000 of the guaranteed Pounds 100,000 prize money for today's Plate, the 150th time the race has been run.

Back in 1833, when it was first held before moving to Gosforth Park, Northumberland and Newcastle teemed with miners. Now, just one deep mine, Ellington, clings on.

Mr Parmley has to hope the Plate will outlive the pitmen.

ROTHMANS International and its subsidiary Dunhill Holdings resumed trading yesterday after their parent, the Swiss-based Richemont, announced details of its planned group restructuring.

Richemont proposed that its tobacco and luxury goods businesses be reorganised into a pure tobacco company, Rothmans International, and a new company, Vendome, to hold all its luxury brands.

That would be achieved through the merging into Vendome of Rothman's luxury goods interests, held through Dunhill Holdings, and the ending of Dunhill's separate stock market listing.

Under a complex restructuring, which needs approval from shareholders and the Inland Revenue, the new companies will have dual holding company structures and shareholders will own units of twinned shares in a UK and non-UK company. This structure will shield overseas shareholders like Richemont from UK advance corporation tax.

According to the terms of the deal, shareholders with 1,000 Rothmans B shares would receive 1,000 new Rothmans units, 500 Vendome units and Pounds 757 cash. Holders of 1,000 Dunhill shares would receive 133 new Rothmans units, 749 Vendome units and Pounds 443 cash.

The company intends to list the Rothmans units in London and the Netherlands while the Vendome units would be listed in London and Luxembourg.

The cash element totalled Pounds 525m, of which Richemont will receive Pounds 300m. Following the restructuring, it will own 61 per cent of Rothmans and 70 per cent of Vendome.

The terms of the restructuring assumed a value for Cartier, Richemont's most valuable division, of Pounds 2.1bn, valued on the basis of 18 times earnings. Rothmans and Dunhill were given fully diluted market values of Pounds 4.62bn and Pounds 661m respectively.

Shares in both companies fell because of profit taking and a suggestion that some Dunhill shareholders might oppose the plan. Rothmans shares fell 28p to 692p while Dunhill dropped 23p to 383p.

Separately, Rothmans announced an 8.6 per cent increase in pre-tax profits to Pounds 614m for the year to March 31. Earnings increased 10.7 per cent to 47.4p and a final dividend of 7.5p was recommended to make a total of 11.5p, a 12.2 per cent increase.

Richemont announced a 5.1 per cent increase in profits to Pounds 651.9m during the same period. Earnings per unit increased 5 per cent to Pounds 35.98 while a dividend of 588.75p is proposed.

CHIROS, a new company specialising in refining drug manufacturing techniques, is expected next week to raise Pounds 10m from venture capitalists and institutions ahead of a flotation probably early next year.

The placing has been arranged by Mr Chris Evans, a microbiologist and the company's founder, and Mr Nowell Stebbing, a former co-ordinator of research at Genentech and more recently Amgen.

Many pharmaceutical compounds, although chemically pure, are made up of slightly different substances or isomers. Each has the same atoms but they are arranged differently. Only one isomer will carry most of the therapeutic activity. The other, because of the different structure, can have toxic side effects, as was the case with Thalidomide.

Chiros has developed what it believes is a unique collection of technical knowledge to isolate the beneficial forms to make purer drugs and intermediary compounds for large pharmaceutical companies.

Mr Evans says Chiros is meeting a demand from the largest pharmaceutical companies to produce new drugs, and to modify existing formulations, that exist as single isomers.

There is some competiton, but he says Chiros is ahead of the field in the difficult procedures required to make single isomers.

The shares are being placed with Schroder Ventures, Apax Partners, 3i Group and Mr Evans, who provided the Pounds 3m seed capital when the company was formed last year.

Mr Evans, who is chief scientific officer, says Chiros will pursue three business strands. It will supply purer intermediary products to companies like Glaxo and Wellcome and forcasts sales of Pounds 30m a year within six years.

It will be involved in the clinical development of single isomer versions of drugs that are now are only available in multi-isomer form. Chiros thinks two drugs will have been launched and several others will be in late clinical development within six years.

And it will try to develop new drugs for eventual licensing or clinical development. Though no products are likely to be launched before 1999.

The Shield Group, which has estate agency and other property related interests, turned in pre-tax profits of Pounds 282,000 in the year to March 31, compared with losses of Pounds 1.37m.

The company said it was taking steps to wind up certain non-trading subsidiaries in order to rationalise group operations. It should not have any adverse effect on the overall profit or asset position.

Turnover fell to Pounds 2.07m (Pounds 10.6m). Losses per share came through at 3.7p (20.8p) and there is no dividend on either the ordinary or preferred shares.

Essex Water yesterday put out an official correction, saying that its total dividend for the year was 75.4p and not 74.5p as it originally stated.

Shares in Blackland Oil, the USM-quoted oil and gas exploration group, were yesterday suspended at 8 1/2 p, pending shareholders' approval of reorganisation proposals.

Vistec Group, which supplies computer systems, software and services, lifted its pre-tax profit by 29 per cent in the year ended April 30 1993, from Pounds 2.71m to Pounds 3.5m.

The increase was achieved from turnover 20 per cent higher at Pounds 38.7m (32.3m).

Computer services continued to make headway with record profits and strong cash flow. In general, trading improved primarily because new contracts were won rather than margins increased.

Earnings per share rose to 2.07p (1.52p). The final dividend is 0.25p for a total of 0.375p (0.35p).

OMI International, the industrial design, logistics and instrumentation group, cut pre-tax losses to Pounds 5.02m in the year to March 31, against Pounds 13.3m, restated for FRS 3.

There were exceptional charges of Pounds 4.07m including provisions of Pounds 2.1m against contracts and restructuring costs in its German subsidiary and losses of Pounds 1.22m on disposals. The previous year's exceptionals of Pounds 12.1m covered Pounds 10.6m of goodwill written off.

Operating profits on continuing businesses came out at Pounds 367,000, against losses of Pounds 500,000. Logistics advanced 89 per cent and the manufacturing businesses rose by 20 per cent. The proposed final dividend is being maintained at 1p for an unchanged total of 1.75p.

Group turnover for the year was Pounds 37.3m (Pounds 51.2m). Losses per share were 11.6p (30.2p).

Brunner Investment Trust raised net asset value per share to 221.2p at the end of May 1993, against 202.7p six months earlier and 194.8p a year before.

However, net earnings for the six months period dropped from Pounds 1.72m to Pounds 1.51m, representing 2.35p (2.69p) per share. The interim dividend has been raised from 2.35p to 2.4p and a total not less than 5.25p (5p) is forecast.

SHARES in Campbell & Armstrong yesterday fell 4p to 17p after the shop and office fitting group warned that it expected to incur after-tax losses of Pounds 3.5m for the year ended March 31.

After omitting the interim dividend, no final will be paid. Last year's total was 2p and reported net losses came to Pounds 595,000.

The company said that although the core shopfitting business returned to profitability, turnover and margins for the construction-related activities were seriously affected by the recession.

Action had been taken to reduce overheads and the disposal and closure of some businesses should mean a return to profitability as economic conditions recovered, it added. Current order book was in line with budgeted expectations.

The company said it intended to publish the 1992/93 results - which have been prepared under FRS 3 - on July 22. Also it planned to change the company's year end to December 31.

YORKSHIRE ELECTRICITY yesterday announced a re-organisation of its core business as it disclosed a 10 per cent rise in pre-tax profits to Pounds 156.3m and a 15 per cent rise in total dividends.

The shake-up involves the break-up of the main business into three separate divisions - a system division or the 'true core' as the company calls it, and network engineering and energy management - with the aim of it making it more competitive.

Network engineering and energy management will work on a contractual basis with the core, which will employ only about 330 people, against their combined 3,200.

Mr Malcolm Chatwin, chief executive, said the company was preparing for increasing competition which the industry regulator is promoting in areas like meter reading.

The aim was to ensure that the businesses had every opportunity to compete at market rates. 'It is about changing the culture,' he said.

In the year to March 31, Yorkshire increased earnings per share by 11 per cent to 53.7p and the dividend to 20.42p from 17.76p, with a recommended 14.42p final.

The dividend rise was at the higher end of recs which have reported so far for last year, but Mr John Tysoe, chairman, denied the company was in a dividend race.

The company could not ignore sector norms, he said, but its policy always had been to match dividend rises to earnings rises over the five year period to 1995 and that remained in force.

Distribution profits rose from Pounds 135.3m to Pounds 136.2m and supply, helped by a Pounds 36m cut in the value of debtors, from Pounds 8.9m to Pounds 10.6m.

The company made provisions of Pounds 10m for the retailing joint venture with East Midlands and Pounds 7.6m for distribution re-organisation costs but, after write-backs for the previous year, total provisions were about Pounds 10m.

Gearing fell from 15 to 7 per cent.

COMMENT

Long used to being one of the sector stars, Yorkshire has seen its rating slip in the last month or so. There is nothing in these results to explain the drop, one reason perhaps why the shares gained 5p yesterday to finish at 496p. Retailing profits stood still at about Pounds 1m, but that is considerably better than other companies and by forming a joint venture Yorkshire is better placed than others to pull out of stores if they do not perform. The benefits of being among the first recs to tackle contracting pay rates are showing through with a rise in profits from Pounds 400,000 to Pounds 700,000. In the core business controllable costs, already down by 7.9 per cent in the last year, will benefit from the restructuring and further job losses can be expected on top of the 328 of last year. All of this should mean the shares, trading at a prospective yield of 5.9 per cent assuming a dividend of 23.4p from Pounds 170m of profits, will at least track the sector in the near future.

LORD HANSON, chairman of Hanson, the Anglo-US conglomerate, yesterday apologised to shareholders for 'over zealously' attempting to change the articles of association which would have given him more power at annual meetings.

Hanson withdrew the offending changes before yesterday's extraordinary meeting after a number of large shareholders expressed their concern.

Asked by one whether the group's non-executives had agreed with the proposed changes, Lord Hanson said: 'Not all the non-executives were able to go through the fine print. It was presented to the board but we did not go through the fine detail . . . that was a mistake.'

The six non-executive directors include Mr Simon Keswick, chairman of Hongkong Land, part of the Jardine Matheson empire, Sir Christopher Harding, chairman of BET and Mr Kenneth Baker, the Conservative MP.

Mr Derek Bonham, chief executive, said after the meeting that there had been no question of Hanson 'trying to slip' the changes through the board without the non-executives noticing.

However, he said it may have been the case that the executive directors had been deficient in providing them with all the material necessary.

The extraordinary meeting was originally called to approve a scrip dividend plan which requires the modification of the company's articles of association.

At the same time Hanson proposed introducing a number of other alterations to the articles designed 'to facilitate the orderly conduct of meetings' by giving the chairman of Hanson's annual meeting (which is always Lord Hanson) greater powers.

The changes would have limited shareholders' rights to nominate directors, speak at annual meetings, call for votes at meetings and amend agenda items.

Lord Hanson said: 'Certain amendments that we proposed were misinterpreted as a move on our part to restrict shareholders' rights at meetings. Nothing could have been further from our minds. But since some of our shareholders were unhappy with the proposed changes we decided not to proceed with them.'

Many of the group's US institutional shareholders were the most vocal in their opposition to the proposed changes. Over the past two years the US shareholding has increased from 9 per cent to almost 25 per cent of the group.

In response to questions about the strike at 13 of the 29 mines at Peabody Coal, one of the group's subsidiaries, Lord Hanson, said he would rather 'sit out the strike' than give in to intimidation.

The meeting yesterday approved the revised executive share option schemes to bring them into line with the Association of British Insurers' current guidelines.

A further extraordinary meeting to consider the scrip dividend plan will be held on July 23.

ALLIANCE Resources, the US-based natural resources group suspended at 9 1/2 p since October, yesterday announced an all-share offer for Manx Petroleum, a private company 29 per cent held by the quoted company's chairman.

The offer was accompanied by a placing and rights issue of Alliance shares to raise Pounds 2.8m, the appointment of two non-executive directors and the announcement of the all-share purchase of a further interest in a US property.

Alliance has offered 13 of its shares for every one of Manx's, which were trading at 50p on a matched bargain basis. The offer values Manx at Pounds 1.7m. Some 10 per cent of the enlarged company will be held by Alliance chairman Mr John O'Brien, who is also Manx's managing director.

Mr O'Brien said the acquisitions would 'strengthen the company's position and prospects considerably'. The funds would initially be used to develop Alliance's assets in the US.

The last year has been an eventful one for the cash-strapped Alliance, which was put into receivership by Manx following an attempt by directors to sack Mr O'Brien last October.

Mr O'Brien had been appointed chairman in May 1992 following an agreement with Alliance that it would eventually make an all-share bid for Manx.

The agreement, which was not made public to shareholders, also set out terms for a Dollars 200,000 loan to Alliance and the payment to Manx of monthly management fees of Pounds 10,000.

Manx called in administrative receiver, Mr Graham Wilson, when Alliance failed to repay the loan on demand. Mr O'Brien was subsequently reappointed chairman.

Yesterday's announcement means the number of Alliance shares will jump from 18.4m to 150m. The group proposes to place 44m shares at 5p to raise some Pounds 2.2m, while a one for one rights issue will draw a further Pounds 920,000 before expenses.

Alliance also announced the appointment of Mr James Prior, currently a Manx director, as non-executive chairman and Viscount Torrington, director of Flextech, as a non-executive director. The group intends to apply for a relisting of its shares in London and Toronto.

SIR DENYS Henderson, chairman of Imperial Chemical Industries, yesterday warned that his company's improved performance in the first quarter had been the result of cost-cutting and the devaluation of sterling rather than an improvement in the economic environment.

'While there are signs of economic recovery in some markets, including the UK, the underlying business trends in Continental western Europe remain poor. It is really too early to express definitive views regarding trading prospects,' he warned. Pre-tax profits increased in the first quarter by 10 per cent.

Sir Denys warned that in trading terms, 1992 was a very difficult year during which the world economic scene deteriorated. 'This has been a desperately bad recession, deeper and wider than anything we have seen since the 1930s,' said Sir Denys.

'But although ICI's performance has suffered in consequence, it compares reasonably well with that of our international competitors in the chemical industry and many other large multinationals,' he maintained.

Sir Denys defended the decision to maintain the dividend on the basis of the actions taken over the last three years to strengthen the company, and given the view that the industry was very close to the bottom of the chemical cycle.

ICI closed its last plant manufacturing the ozone-depleting gases CFC 11 and CFC 12 in April. The last factory making halon, another ozone-damaging gas, would close during the autumn.

The shares closed down 4p at 695p yesterday.

On a warm Thursday evening this week, 1,000 people are hunched over their bingo tickets in a converted 1930s cinema in Wood Green, north London.

The listed interior is freshly, if garishly, painted. The numbers shouted out by the caller appear on screens around the room. Gone are the traditional numbered ping-pong balls blown through a plastic tube; the caller reads from a computerised random-number generator.

If the decor comes as a surprise to those expecting something shabbier, so do the customers. There are plenty of the industry's traditional players: elderly women. But there are also young couples, groups of women in their 20s and 30s, men with arms covered in tattoos. Those inside the club, part of the Top Rank chain, are as racially diverse as on the streets outside.

The extension of bingo's appeal this week attracted a new entrant to the industry. First Leisure, the 10-pin bowling, discotheque and tourist attractions group, announced it was paying Pounds 19.9m for Nudge Leisure, a private company with seven bingo clubs in the Midlands. First Leisure says the increasing number of younger, more affluent customers makes bingo an attractive investment. The group intends to open two or three new clubs a year, creating a chain of up to 30 venues.

Bingo prospered throughout the 1960s and early 1970s, but declined as unemployment rose during the early years of Margaret Thatcher's government. The game began to regain popularity in the latter half of the 1980s, spurred by improved facilities and bigger money prizes.

Last year the number of licensed clubs nationwide showed a net increase of eight, bringing the total to 1,019 - the first rise since 1974. About 2.8m people play regularly in the UK, according to the Bingo Association of Great Britain.

Two large operators dominate the business: the Rank Organisation, with 163 clubs trading under the Top Rank and Mecca names, and Gala Clubs, owned by Bass, which has 136 venues.

Although the chains' clubs are predominantly in converted cinemas and theatres, both groups are focusing their investment on purpose-built bingo centres on the outskirts of towns and cities, providing parking as well as access by public transport.

Mr John Garrett, managing director of Rank's recreation division, says that it is in the purpose-built clubs that the change in the bingo market is most evident. At the group's newly-opened Southend club, which also offers a Saturday night cabaret, the average age is 39. Thirty per cent of the Southend customers are men.

The group says its bingo business has held up reasonably well during the recession, with last year's total admissions of 35m up 2 per cent on 1989. The average expenditure of Rank's customers per visit is about Pounds 13.50 - including entry fees, bingo tickets, food, drink and amusement machine spending. Spending has increased in line with inflation throughout the recession.

Given the preponderance of older clubs, however, accounts of how bingo has changed should not be overdone. The average age nationally is 53; and women still account for 80 per cent of players.

Mr Ian Burke, Gala Clubs' chief executive, says many of the traditional players have been a valuable resource during the recession. Pensioners on fixed incomes have continued to play. The industry has been helped by female unemployment rising more slowly than that of men, Mr Burke says.

Mr Nick Tamblyn, First Leisure's commercial director, says: 'The market shift is gradual rather than something that's happening overnight.' Nor is the social class of bingo players changing markedly. 'Let's not kid ourselves that we're looking for the BMW set. We're not. But we are now more geared to the car-driving visitor.'

Mr Tamblyn says that, together with snooker and 10-pin bowling, bingo is a business where operators can rely on large numbers of people spending small amounts of money, compared with other leisure pursuits such as foreign holidays. When times are hard, bingo customers tend to cut down on the number of times they play each week rather than stopping altogether.

Some appear to have cut down very little. Ms Jackie Quintin, a 33-year old mother of four who won Pounds 425 at Wood Green on Thursday night, plays two or three times a week. Persistence appears to pay off; last February she won Pounds 1,200.

Far bigger prizes are available. At the newly-built Top Rank club in Romford, Essex, about 700 players are attempting to win a prize of Pounds 49,354.13. Most of the prize is on offer as part of the National Game, played every night and twice on Saturdays by 675 clubs around the country. The clubs are linked by computer. The numbers come from a central random generator at a centre near Heathrow airport.

The prize that night was won by a player at a club in Glasgow. There are enough smaller prizes, from Pounds 50 upwards, however, to give everyone the chance of winning something, sometime. Mrs Jan Jobson, a 26-year old housewife, who plays at the Romford club once a week, won Pounds 1,000 last November. 'It's addictive. Once you've won once, you've got to come back and win again,' she says.

No gambling business can succeed, of course, unless customers lose more than they win, but a Gallup survey of bingo players in 1991 found that only 4 per cent had never won anything. A third said they had won more than 10 times.

Gaming legislation in the UK places severe constraints, however, on the bingo industry's ability to market itself. All bingo players have to be club members. Although membership is free, customers have to wait 24 hours after being accepted before they can play. Clubs are only allowed to advertise their venues to the public as social meeting places. They are not allowed to say what prize money is available, even on the outside of the club.

Much of the broadening of bingo's appeal has been by word of mouth. Mr Jason Derham, a 24-year old painter and decorator who plays at Romford once a month, was persuaded to come by his girlfriend, whose parents had been playing for years.

The plastic membership swipe cards, which players use to gain entry do, however, provide clubs with marketing information which they use to target customers directly. Members receive birthday cards from the club, as well as offers such as a free drink on a particular night.

The Rank Organisation says it once noticed from the information provided by the cards that a group of regular customers, all living in the same area, had stopped coming. Further investigation revealed that a change in the bus timetable had made it difficult for members from that area to reach the club in time for the start of the session. When the starting time was made slightly later, the customers began playing again.

It has been a wonderful week for Michael Jordan, America's best-known and highest-paid sportsman, who led the Chicago Bulls to their third consecutive National Basketball Association championship on Sunday night.

The 4-2 victory over the Phoenix Suns in the seven-game series was due in no small measure to the 30-year-old's extraordinary athleticism. And the hat-trick helped Jordan brush off media controversy earlier this month over his enthusiasm for gambling.

It should also have been a great week for Nike, America's leading athletic footwear manufacturer. Not only does it have Jordan under contract to promote its products (paying him a reputed Dollars 10m to Dollars 20m a year) but also Charles Barkley, a Phoenix Suns star known for his aggression on the court.

Each player has his own Nike line - called Air Jordan and Air Force Max. Basketball shoes are the largest single category of sporting footwear in the US, accounting for some 29 per cent of the Dollars 6bn wholesale (nearly Dollars 12bn retail) market, according to the Athletic Footwear Association.

'For Nike,' says one industry observer, 'the NBA play-off was a series made in heaven.'

Yet Nike's week has been anything but a slam-dunk. Its shares fell sharply after it warned that 1993-94 earnings were likely to be well below Wall Street's expectations, and the market's gloom was compounded by a similar statement the previous week from Reebok International, Nike's arch rival.

Both companies blamed general retail sluggishness in the US and recession in Europe, while Reebok said its problems were compounded by weaknesses in its line-up of basketball shoes this quarter.

But observers suggest other factors may also be at work, including pressure on margins from intensifying competition in the mature US athletic shoe market, and shifts in footwear taste among fashion-conscious young Americans. The 1980s were the great boom era of the sports segment, as a new generation of American companies, led by Oregon-based Nike and Reebok of Massachusetts, rapidly overtook European rivals like Germany's Adidas by offering shoes tailor-made for the fitness fads of the era, such as aerobics and jogging.

The new shoes were not only comfortable on the feet but also looked stylish, and the number of Americans buying them as fashion leisure wear quickly outstripped sales to those trying to work up an athletic sweat. Today, only one-third or fewer of US sneaker buyers use them for sport.

The boom plateaued at the start of this decade, owing partly to recession but also to market saturation. The average American owns three pairs of sneakers but, like mortals everywhere, has only one pair of feet to show them off on.

So while sneakers now make up almost 40 per cent of the US footwear market, the numbers sold last year dropped 1.8 per cent from 1991 and nearly 5 per cent from the 1990 record of 393m pairs.

This maturity has encouraged the American manufacturers to focus much more attention on foreign markets, which they reckon could be worth about double the US one. Their brightest prospect is Europe, which seems gradually to be adopting more casual shoe styles.

However, recession has temporarily put a damper on the European market, and the effect on US companies' profits has been compounded by the recent strengthening of the dollar against European currencies. At the same time, the flat US market is producing much tougher competition at home, forcing companies to trim prices to maintain market share.

This pressure on margins could intensify over the next few years, owing to the growth of big new sporting goods superstores with the retailing muscle to command keen wholesale prices. For example, Kmart, the discount stores group, is building up a chain called Sports Authority, each branch of which will sell up to 40,000 different items under one roof.

These forces seem likely to mean consolidation of the footwear industry, since they favour the largest, best-capitalised manufacturers such as Nike and Reebok.

So too do the concomitant pressures on the manufacturers constantly to come up with better-engineered shoes in new designs and then pour tens of millions of dollars into marketing them - particularly to the fickle young Americans who make up a large proportion of their customers. For them, shoes are as much a statement of personal identity as a means of locomotion.

Some analysts suggest that one factor in the sneaker manufacturers' sluggish sales this summer may be a sudden, youthful enthusiasm (though still minor in terms of the industry's revenues) for British-made Dr Martens shoes - dour, military-style boots worn by the likes of singer Madonna and actor Arnold Schwarzenegger.

Dr Martens complement the 'grunge' look, and are the antithesis of the sports shoe, such as Nike's extremely light Air range. It was these sneakers, and the endorsement of Jordan, which allowed the company to recapture US market leadership in 1989 from Reebok, which had the title for the previous three years.

Reebok has hit back with its 'pump' range, which allow air to be pumped into a shoe for a better fit. But despite gains at the expense of smaller rivals, Reebok still accounts for only 24 per cent of the market, compared with Nike's steady 30 per cent.

Reebok is vowing to overtake Nike by 1995 and it has a new weapon - its Shaq Attack range of basketball shoes, named after a 7 foot 1 inch young star called Shaq O'Neal.

O'Neal is one of the most promising talents in the NBA, but he plays for Florida's Orlando Magic, a team that is not based in one of the premier basketball cities, and he has yet to win any important pennants.

And, as Michael Jordan can attest, when people are buying dreams as much as a pair of shoes, nothing succeeds like a three-time champion.

Thank you for your excellent reporting of the Tory party funding fiasco ('Tories unsettled by funds secrecy', June 21).

I would add that it is also widely assumed that company donations are made with the approval of shareholders. From my own experience, this is totally false. For I have written, as a shareholder, to four companies which donate large sums of money to the Tory party, seeking an opportunity to vote on ceasing donations. In all cases my request has been rejected on the grounds that the Tories serve companies' economic interests best.

Leaving aside the democratic rights of shareholders, such claims are extremely dubious given the economic shambles the country is now in after 14 years of economic mismanagement. Indeed, I would go further and say it is because the Tory party is so excessively funded that we are now so badly governed. For if the events of the last 12 months tell us anything, it is that a party that can buy its way to permanent power will become tired, complacent, incompetent and unfit to govern.

Keith Darlington,

24 Wycombe Road,

Gants Hill,

Ilford, Essex IG2 6UT

Sir, Mr Cole of James Capel proposes the view that 'mortgage arrears gloom is overdone' (Letters, June 23). May I suggest certain reasons for the opposite view.

First, a very large number of mortgagors have had to 'capitalise' their arrears over the last few years, under pressure from their lenders. These cases will no longer appear in the official statistics as 'arrears' but as additional lending (falsely inflating the figures for new loans). In the short term, borrowers in this position are in the same position as those in arrears, so far as their ability to spend money is concerned. However, such borrowers (and their lenders) have transformed a short-term reduction in spending power into a reduction over the remaining term of their mortgages (often extended by the lenders to allow the repayment:income ratios to come back into line with their standard lending criteria).

Second, published statistics on mortgage arrears rarely reflect the effect of 'arrears charges' on the balances owed by borrowers in difficulties. Such charges are in reality usurious, but are dressed up to avoid the usury laws. Their impact on mortgage balances, and consequently upon spending power, may be as much as 50 per cent of that of directly recorded arrears.

Third, the impact of severe wage restraint on the high proportion of mortgagors who earn their livings in the public sector will ensure that the overhang of debt and arrears is not rapidly cleared.

J J Plant,

101 Clova Road,

Forest Gate,

London E7 9AG

Sir, I read with interest the requirements for those central and east European countries that at present have associated EC status to become full members ('The Copenhagen summit', June 23). While it is relatively, if not entirely, straightforward to determine whether a particular country has achieved 'stability of institutions guaranteeing democracy, the rule of law, human rights . . .', it seems to me that the requirement to have achieved 'the capacity to cope with competitive pressure and market forces within the Union' is like the proverbial piece of string.

I cannot but notice that one or two countries within the Union seem to be having a spot of trouble in this regard. I note further that, if Sweden and Finland join the EC, the Baltic states of Estonia, Latvia and Lithuania, which have associated status and are struggling to fulfil the requirements as set out in the declaration, may suffer. The fear is that the EC will force Sweden and Finland to cancel bilateral free-trade agreements with the Balts which have helped their economies to such a large degree since their independence.

Romas Kinka,

director,

Anglo-Baltic

Information Consultancy,

14 Tudor Road, London E9

There is something about the way Brian Moffat has reached the chairman's office at British Steel that resembles the ascent of another 'man who came from nowhere' - Prime Minister John Major.

Like the prime minister, Moffat's public persona was scarcely visible when he added the job of chairman to that of chief executive - a step he says British Steel never intended to take. But his profile is higher after a week which saw him lambasting state subsidies in Europe and 'ostriches' in the US - Big Steel and its unions.

Like Major, too, Moffat owes a considerable debt to a predecessor whose style could hardly be more different: the ebullient Sir Bob Scholey. A man with a legendary temper and an ability to arouse strong emotions has given way to a man who inspires respect but is described as reticent and aloof.

'I don't smile too much,' says Moffat, who has been silver-haired as long as anyone at British Steel can remember. 'But at times it's been grim. Perhap's there'll be more opportunity to smile as things pick up.'

The analogy with Downing Street should not be pursued too far: Thatcher went because she was pushed; Sir Bob served out his contract. Moffat, aged 54 and named chief executive in 1991, took on the additional role of chairman this year after the new non-executive chairman, Sir Alistair Frame, resigned for health reasons.

Moffat's style may contrast with Sir Bob's but his message - spelled out on Monday as the company announced a Pounds 149m annual pre-tax loss - picks up many of the same themes: free markets, level playing fields, cost control, competitiveness; above all, the refrain, 'We've cut capacity, now it's somebody else's turn.'

But a big question remains: does Moffat have the political skills and the charisma for the top job?

Running British Steel is a highly political task. The company may have been privatised in 1988, but no big integrated steelmaker can operate in a vacuum: witness the outrage in Scotland last year over the final closure of the Ravenscraig plant, this week's dispute over US anti-dumping duties, and the tortuous progress of the European Commission's restructuring plans for the industry.

Some observers believe British Steel might appoint another non-executive chairman to replace Sir Alistair, but the ideal solution, says Moffat, would be for him to remain chairman and a new chief executive to be appointed from within the company.

The City would prefer the roles to be split, but at present British Steel is sticking with Moffat in both. 'Two institutions have raised the question,' he says. 'We've seen one and written to the other. We've had understanding replies.'

One role or two, British Steel characteristically makes no attempt to puff up the image of its chairman, who is no self-promoter. The company's bald biographical note does scant justice to his career.

Born and raised in Scotland, Moffat is a chartered accountant who joined the former British Steel Corporation in 1968, a year after it was nationalised, from Peat Marwick Mitchell. Starting as deputy controller, finance, at head office, he moved through a succession of posts before becoming managing director of finance in 1986.

Moffat's big break - especially for an accountant - was his appointment by Scholey in 1976 as director of the sprawling Port Talbot works in South Wales. 'Bob Scholey was never frightened to use youth, and neither have I been,' he says.

Moffat spent 10 years at Port Talbot, weathering the national strike in 1980, cutting jobs from 13,500 to 4,700, and masterminding its restructuring and capital spending programme. 'We rebuilt it from end to end, turning something that was third class into a first-class plant,' he says.

By this stage, he says, he enjoyed making steel more than being an accountant, and he was initially reluctant to go back to head office as managing director, finance. But the move gave him the opportunity to become involved with the 1988 privatisation of British Steel, and established his strong reputation in the City.

Three years later, Moffat's ascent through British Steel received a surprise boost. Martin Llowarch, destined to be chairman, resigned suddenly as chief executive and Moffat replaced him.

Today, as chairman and chief executive, Moffat retains his strong reputation in the City, but a succession of reduced or passed dividends and the difficulties over EC restructuring and US trade friction raise the question of whether the job is too big for him - or for any one person.

One consultant familiar with British Steel calls the decision to combine both posts 'scandalous . . . Moffat is a very good chief executive, he's a tough son-of-a-bitch, but he doesn't have the vision to be a chairman'. Sir Alistair's departure, he says, not only gave British Steel a chance to retreat back into its shell, but robbed the company of a chairman with immense experience in dealing with politicians.

Moffat responds: 'If the whole burden of British Steel rested on my shoulders, that would not say much for its management depth. I can bring the company the benefit of my experience and set the agenda. Other people will have to carry it out.'

And his vision of the future? Moffat may be an accountant-turned steelman, but his message to long-suffering shareholders suggests he has not gone entirely native. 'I'm not interested in making steel, I'm far more interested in making money,' he says. 'We've been cutting costs very seriously since 1980, now we've got to concentrate on the revenue side.' This means raising prices, improving the product mix and further enhancing quality. To satisfy the doubters, the man who came from nowhere has to prove that he is a somebody on the public stage and that he can deliver on this strategy.

Sir, David Buchan writes that the idea of a social clause in the General Agreement on Tariffs and Trade is 'presumably that unions would push up labour standards, and thus costs, in developing countries'. ('France's four-letter word', June 21). The idea is far simpler. It is that unions, once able to operate in conformity with the conventions agreed by governments, employers and unions over decades at International Labour Organisation tripartite gatherings, would be able to push up internal purchasing power, hence demand.

It is a system that worked first for North America, then for west Europe, and then for Japan between 1945 and 1980, and follows the law of subsidiarity, as it allowed institutions of different countries to find their own way to solve the problem of wealth creation and distribution. High internal demand supported by high wages usually goes hand in hand with low unit costs, and free trade. A Gatt social clause was not needed for the US, Japan and west Europe, as all three economic centres played by the rules of economic and democratic pluralism - including the former authoritarian states of Spain, Portugal and Greece when they joined the EC.

Unfortunately, the new world economic players, notably those in Asia, want to write new rules to guarantee their positions as export platforms while denying economic pluralism internally. Gatt will only survive if it widens its remit to include a social clause, and the EC leaders in Copenhagen should ask not how they can make European worker-consumers poorer by cutting labour costs but how they can make the world's worker-consumers richer by increasing their ability to buy the goods and services they make.

Denis MacShane,

54 bis route des Acacias,

1227 Geneva, Switzerland

Sir, It was clever detective work by you to discover the solution to the mystery being investigated by Inspector Morose in the BT3 campaign. Unfortunately, though unravelling the clues, you made one serious error: Inspector Morse is one of Central Television's many successful dramas and not Thames's, as Observer said ('BT3 - the end', June 23).

I fear you are destined to continual walking on the beat without any sergeant stripes, if you make errors like this.

John Palmer,

controller, press and publicity,

Central Broadcasting,

Central House,

Broad Street, Birmingham

Of late, Steven Raw has become something of a seer around the streets of Nelson. When 23-year-old Mr Raw sees people brandishing plastic cash cards in the Lancashire town, he cautions of the fate that could befall them. 'Everyone I see around town now, I warn. I say 'Watch what you are doing with those cards.' You cannot be too careful.'

Mr Raw, a worker at a medical fabrics company, speaks from bitter experience. He is in dispute with Barclays Bank over Pounds 600 withdrawn from his account through automated teller machines, the 'holes in the wall' on which banks increasingly rely to dispense cash. The dispute arrived in the London high court this week after two years of acrimony and suspicion.

Mr Raw is not alone in arguing with his bank over whether someone else took his money. This week's judgment that nine people with similar claims against banks and building societies can proceed with a mass legal action threatens to provoke a flood of disputes. Banks face being haunted by 'phantom withdrawals'.

His dispute is typical. It started two years ago when he received a three page Barclays statement listing a series of withdrawals from cash machines that he did not recall making. He still had his card, and he says he had not told anyone else the four-digit personal identification number (Pin) with which he identified himself when using his Connect cash card.

He went to his local branch to complain, and met with an upsetting response: the bank did not believe him. It had records of transactions, and its technical experts believed it impossible for anyone who did not know Mr Raw's Pin to break its codes and take his money. Mr Raw found suspicion falling on himself and his girlfriend.

'I went mad with them. I went down there thinking it was a computer error, and they would just credit it back but they said it must have been me,' he recalls. The dispute got harsher, until Mr Raw had a piece of luck. His parents saw a television news item about a firm of Merseyside solicitors pursuing phantom withdrawal cases.

Things took a better turn after he contacted the firm, J Keith Park, which took up his case.

Barclays wrote to Mr Raw offering to refund Pounds 425 of the disputed amount, citing the code of practice introduced last year, and which limits customers' liability in most cases to Pounds 50 of the disputed sum.

There are two reasons why the banks have taken such a stern attitude on disputed transactions.

First, they are becoming increasingly reliant on cash machines as they close branches and switch staff away from being cashiers towards selling other products such as insurance. TSB is among banks experimenting with sophisticated ATM machines on which customers can carry out transactions such as switching money between accounts.

Although cash machines accounted for only 4 per cent of money transmission - or 1bn transactions - in 1991, the banks calculate this could quadruple by the year 2000. This means that they are wary to acknowledge that such machines could be fallible.

'The biggest worry about this affair is that there could be a breakdown of trust,' says one banker.

The second reason is that the banks find a true case of 'phantom' withdrawal inconceivable. This would be a case where a thief managed to extract money from someone's bank account without knowing the Pin number of their cash card. The reason is that banks' security effort has above all been directed at ensuring that it is impossible to crack Pins.

'It puzzles me totally,' says Mr Paul Dorey, head of information security at Barclays. 'Machines can make mistakes, but it is beyond the world of possibility that our systems could make up transactions in the way this implies.'

In Barclays' case, Pin numbers are generated by a computer at the centres where cards are manufactured, and are transferred to the central computer against which transactions are checked. They are not seen by staff, or coded on the magnetic strip on the back of cards. The only person who sees both the card and the Pin number is the account holder to whom they are sent separately.

When the customer presses the Pin into the ATM keypad, an electronic 'black box' encrypts the number so that it cannot be intercepted, and sends it to the mainframe ' via another computer if the ATM is owned by another bank. The computer decrypts it and sends an authorisation message. The cash machine records each transaction on paper roll.

Mr Dorey argues that it would take four sets of software to go wrong simultaneously in the same way to record a falsely authorised transaction. Fraud would require someone either to know the Pin, or to break the code encryption. The latter has never been known, according to Mr Richard Tyson Davies, of the banks' Association for Payment Clearing Services.

For these reasons, the first reaction of banks has often been to accuse customers either of fraud, or of carelessness. Banks say that most cases of 'phantom' withdrawal into which they inquire turn out to be relatives or friends of the customer who have discovered the Pin.

Yet despite the banks' denial of the possibility of pure 'phantom' withdrawal, they are having to admit that incidents that look very like it have occurred. One example is staff fraud. In a notorious case, a Clydesdale Bank computer engineer stole Pounds 17,000 by recording Pins on a portable computer as the bank's customers used ATM machines.

More broadly, there have been cases where cash withdrawals have been applied to the wrong account.

Among the cases being pursued by J Keith Park is one of a man whose card took cash from someone else's account, apparently because the wrong magnetic strip had been placed on the back.

The washing of such dirty linen in public is one effect of the mass action, which banks believe could take up to three years to settle. It has yet to be decided in what form, or in what courts, individual cases will be argued.

While banks fear a loss of confidence in cash machines, an even greater worry might be a wave of similar claims. On this point at least, the banks and their opponents are united in scepticism.

One reason is the banks' decision to change their code of practice, limiting customer liability to Pounds 50, except where a customer has been 'grossly negligent' by disclosing a Pin number.

A second reason is that banks are working on reducing errors and fraud. Barclays has announced that it is to install cameras at six of its cash machines, and banks are working together on innovations such as 'watermarking' the magnetic strip on cards to prevent fraud.

But even if there is no rush of claims, the treatment of customers such as Mr Raw has ensured that they face a damaging dispute. Mr Dorey of Barclays says Pin numbers need to be 'treated with respect'. Yet banks are paying the price for not having treated customers that way. 'They told me their machines were foolproof, but I know otherwise now,' says Mr Raw.

AS MR John Major's accident- prone government sheds one minister here and another there, Mr Kenneth Clarke looks a reassuringly solid figure in the storm. Within less than a month of taking office as chancellor, he gives every sign of being in charge and invulnerable. Yet his chief achievement to date lies less in the field of economics than in presentation. He has succeeded, remarkably, in giving the appearance of candour while offering no obvious hostages to fortune.

In a government that is singularly short of political finesse, this talent is not to be underestimated - especially when the demands of the electorate have to be reconciled with the requirements of the markets. But as Mr Clarke himself has implicitly acknowledged, this is the easy bit. He has arrived in the job at the optimal moment in the electoral cycle. His predecessor had, after a fashion, grasped many of the more difficult nettles. And it is clear that a recovery is well under way.

This week the Central Statistical Office revised upwards its estimate for non-oil GDP in the first quarter to reveal an annualised rate of growth not far short of 3 per cent. The personal sector is beginning to cheer up a bit. The household savings ratio, whose high level played a large part in prolonging the recession, is now coming down fast, from 11.3 per cent in the final quarter of last year to 10.3 per cent in the first quarter of 1993. The unemployment figures have pleasingly defied the precedent set in the recession of the early 1980s, by falling in line with the upturn in economic activity.

The corporate sector's balance sheet, meantime, has been substantially tidied up. In the first quarter of the year its financial deficit was almost down to zero. Unit labour costs have been falling at a very un-British rate, thereby adding to the competitiveness of industry's exports and giving stock market analysts a good story to tell. Even the broad definition of money, M4, has been accelerating in recent months, suggesting that something might just be stirring in the bowels of a hitherto quiescent monetary system.

Time to talk

Against that background Mr Clarke has been right to talk rather than to act. It is not unreasonable to wait until the strength of the recovery can be more accurately gauged before contemplating a cut in interest rates. The more so, since a cut before the Christchurch by-election would severely diminish his credibility in the markets, while antagonising Britain's partners in the European Community. Having failed to persuade the Germans to embark on a co-ordinated cut in interest rates this week, the French, who face mounting unemployment and growing pressure for protection, would be enraged by any such move after last September's devaluation of sterling.

Yet the test will come in due course. Mr Clarke describes himself as belonging to the 'hard centre'. He claims to be pro-growth, but anti-inflation; both pro-Europe and in favour of free markets; and a proponent of enlightened social reform, whose Midlands background entails sympathy for the manufacturing businesses on which Thatcherite politicians used to pronounce anathemas in the 1980s. Yet the elements in this seemingly attractive cocktail are not all readily reconcilable. The first signs of where the potential difficulties lie are beginning to emerge.

Spending round

For all the recent ministerial rhetoric about a fierce public spending round, Mr Clarke has made it clear that there will be no reduction in spending below existing targets, despite the forecast public sector borrowing requirement of Pounds 50bn. After the big increases in public spending since Mr Major became prime minister, we will have more modest increases, but increases none the less - notwithstanding the Portillo review and calls by social security secretary Mr Peter Lilley for a public debate on the future of the welfare state.

In Mr Clarke's judgment that is the most that can be achieved by a precarious government with too many dissidents on the backbenches. He is probably right. He could also point out, as Goldman Sachs has done, that public spending is actually lower in relation to GDP than it was when the economy emerged from the recessions of the early 1980s and the mid-1970s. There is a problem with revenue. Hence the chancellor's controversial warning in his interview with the FT this week that he will be ready to raise taxes in his November Budget unless recovery brings a faster reduction in government borrowing.

If taxes are increased, then the chancellor will no doubt be tempted to rebalance monetary policy simultaneously. A chancellor whose sympathies lie in the Midlands might well see merit in taxing consumption, while relying on interest rate cuts to help shift resources into exports and investment. But to tax consumption, if the recovery looks weak, will require a great deal of courage. We shall know the potency of Mr Clarke's cocktail in a matter of months.

Losses through fraud at automated teller machines are small change compared with the broad sweep of plastic card fraud which cost Britain's banks Pounds 165m last year.

But winning the battle against all card fraud is the chief aim behind an impressive range of technological weapons being developed by financial institutions and their technology suppliers.

Sending transaction details from the ATM, or point-of-sale device, to the bank is now thought to be secure thanks to 'black boxes' which encode the information and self-destruct if tampered with.

The greatest problem is verifying that a card holder is the person that he or she claims to be.

Customers in future may have to present a finger tip or an entire hand for inspection by an electronic 'eye' incorporated in the ATM. ('Fingerscan' rather than 'fingerprint' is the preferred term these days among bankers concerned about possible complaints of infringement of civil liberties.)

Facial structure, voice, the pattern of blood vessels in the hand, or the back of the eye are all fair game for the emerging science of biometrics, which reckons to make positive identifications of individuals through unique measurements. Video cameras no larger than a computer chip make such measurements a practical proposition.

To inspire confidence in both retailers and cardholders, however, a system of biometrics would have to be both convenient and reliable. None of those so far tested meets the banks' minimum standard - of not more than one false diagnosis in 100,000 transactions. More stringent criteria may be needed in future.

According to Mr Paul Rogers, UK product manager for NCR, the US company which leads the world ATM market (but designs and makes them in Dundee, Scotland), the UK banks will continue to rely on the familiar and inexpensive magnetic strip cards and personal identification, or Pin, numbers, but are likely to add a biometric element. Measurement of hand dimensions is a popular option because the details can be stored in the card itself.

'Smart' cards, containing a microprocessor, are difficult to forge and can hold substantial amounts of information about the cardholder including, say, an electronic facial image. They cost, however, several pounds, compared with pence for a magnetic stripe card.

Customers leave more than fingerprints when they shop. Banks in the US are already using pattern recognition software which detects changes in a customer's shopping habits. If a habitual teetotaller seems suddenly to start buying red wine, for example, it could indicate that a stolen card is being used for the purchases.

It is not an excuse to sing the Marseillaise, says Mr Jacques Delors, president of the European Commission. But recent cuts in French, Dutch and Belgian interest rates, which occurred independently of any relaxation of monetary policy by the Bundesbank, were, he thought, a comforting example of European co-operation. They were certainly a demonstration of D-Mark weakness.

That short-term interest rates in currencies closely linked to the D-Mark can fall below those in the D-Mark is not surprising, at least in theory. Since the exchange rate mechanism permits fluctuations within the bands of up to 2.25 percentage points, deviations in short-term interest rates can occur, in response to cyclical divergences, even when parities are expected never to be realigned.

None the less, what is happening is unprecedented. Three-month interbank interest rates in Dutch guilders have been below those in D-Marks since January 1992. Recently, however, the guilder has been joined by the Belgian and, more significantly, by the French franc (see chart).

Moreover, the official intervention rate of the Banque de France has been cut eight times since the parliamentary elections in March, the last time this week, to rest a quarter of a percentage point below the Bundesbank's discount rate. Yet the D-Mark remains among the weaker currencies in the ERM.

It is no longer, it seems, fanciful to talk of the French franc as joint anchor of the ERM. But can one conclude that the D-Mark might cease to be an anchor altogether?

The Bundesbank would certainly deny this. Mr Helmut Schlesinger, the Bundesbank's president, recently congratulated the French on their achievement. But he also stressed that the Bundesbank had 'kept the D-Mark stable for 40 years and intends to go on doing so'.

Mr Schlesinger is soon to retire, while his designated successor, Hans Tietmeyer, is more internationally minded. But he knows that his influence depends on the strength of the D-Mark.

The view in the markets is far from apocalyptic. Yields on German bonds have risen since April. But they remain rather low by historical standards. Among ERM currencies, only Dutch bonds have lower yields than German ones. Outside the ERM, just two currencies, the Japanese yen and the Swiss franc, are regarded as far better long-term bets than the D-Mark.

The D-Mark may no longer be the undisputed king of European Community currencies. But it remains co-regent. The markets do not expect it to depreciate in the long term against its core ERM partners or, for that matter, dramatically against the US dollar. They forecast further gradual cuts in short-term D-Mark interest rates. Core ERM currencies are expected to depreciate against the yen, the US dollar and even sterling in the short term, but to decline significantly only against the yen, among the main currencies, in the longer term.

Things might go wrong with this complacent scenario in two ostensibly contradictory directions. The first possibility is renewal of doubts about the ability of the French, in particular, to stay the course. While French nominal interest rates have fallen, real French short-term rates are around 5 per cent. The French unemployment rate is forecast by the European Commission at 12 per cent in 1994, while economic recovery is also expected to be modest.

Mr Philippe Seguin - leader of the anti-Maastricht tendency in the Gaullist party and president of the National Assembly - has already challenged the franc fort policy of the government. With the presidential elections due in 1995, it is easy to envisage renewed doubts about French willingness to tolerate high real interest rates. No wonder France wants Germany to accept co-ordinated cuts in interest rates.

The second possibility is that D-Mark weakness would prove both long term and ultimately uncontrollable, even by the Bundesbank. This apocalyptic view has been advanced by the investor, George Soros.

The case is not difficult to make. Germany's total public sector borrowing requirement is 7 1/2 per cent of gross domestic product, among the highest in Europe. Germany has the second highest inflation in the group of seven leading industrial countries and the fifth highest in the European Community.

German labour costs are out of line, especially for a country whose true level of unemployment (allowing for short-time working and other make-work schemes) is already above 5m, or more than 13 per cent of the labour force. According to data collected by Morgan Stanley, West German labour costs per hour are the highest in the world, while east German labour costs more than Japanese and American labour and is 10 times more expensive than in comparable former communist countries, like the Czech Republic.

This seems unsustainable. After unification Germany did need a short-term D-Mark appreciation, in order to help transfer resources to east Germany that were previously lent abroad, via the current account surplus. This adjustment seems to have largely occurred, partly through nominal appreciation of the D-Mark (notably after the summer of 1992) and partly through higher German inflation than in partner countries. In the longer term, however, Germany needs depreciation of the real exchange rate, in order to restore its competitiveness.

There are two routes to enhanced competitiveness: depreciation and competitive disinflation. The former can occur easily enough vis a vis currencies against which the D-Mark is floating. Against core ERM currencies, however, nominal depreciation would imply downward realignment of the D-Mark. This the Bundesbank would presumably resist to the death.

Germany does two-fifths of its trade with countries whose exchange rates have remained fixed against the D-Mark. None the less, it could obtain sufficient overall real depreciation if the core of the ERM were to depreciate substantially against currencies outside it.

Such a general depreciation of the core currencies of the ERM would be more than welcome to France, since it could combine fixity of the bilateral exchange rate against the D-Mark with enhanced overall competitiveness.

It might not be good enough for the Bundesbank, however, which is more likely to want to preserve a strong D-Mark. Moreover, even to sustain D-Mark credibility within the ERM, underlying German unit cost inflation must be no higher than in other core ERM countries. For this reason, the German central bank is certain to strive for underlying inflation as low as in any other EC member country.

Unfortunately, this may prove infeasible, since disinflationary German monetary policies are normally matched, willy nilly, by other countries in the ERM. A vicious circle of competitive disinflation could result. One escape from such a collective downward spiral would be a sharp decline in German relative inflation, which looks unlikely. Another would be substantial German fiscal tightening, which looks more unlikely. Yet another escape would be a further collapse in German credibility, allowing far lower short-term rates in other ERM countries than in Germany, which looks less likely still. A final escape would be a jump to monetary union, which looks least likely of all.

Markets may well be too complacent about ERM stability. Abandonment by the Bundesbank of the effort to push German inflation down to levels achieved elsewhere in the ERM is one threat, since this would undermine the D-Mark's position within the ERM. But continued efforts by the Bundesbank to push German inflation down could be equally dangerous, since it would reinforce the recession in the heart of the European economy and enhance French anguish. There is no easy way out.

The currency markets are, in fact, seeing a slow motion clash between an irresistible force - German unification - and an immovable object - the Bundesbank's commitment to a stable D-Mark. The Bundesbank may be defeated, as Mr Soros expects. If it is, Europe's monetary scene would indeed be transformed.

The battle to restore credibility to the D-Mark is certain to inflict continued pain on everyone. Germans may no longer be able to sing D-Mark uber alles. But a year from now, nobody in France is likely to sing the Marseillaise over the defeat of the D-Mark, even in their baths.

MR KENNETH CLARKE will resist the imposition for a further year of a firm 1.5 per cent ceiling on public-sector pay. But the chancellor has refused to pre-empt an expected cabinet debate on the issue by ruling out entirely the extension of compulsory pay restraint.

In his interview this week with the Financial Times the chancellor said that a second year of rigid pay restraint across the public sector would increase the risk of a damaging bounce-back when the ceiling eventually was lifted.

Mr Clarke issued a warning - repeated yesterday on BBC Radio - that he would be ready, if necessary, to raise taxes in his November Budget. There was a predictably angry reaction yesterday from some rightwing Tory MPs.

Mr David Shaw, chairman of the Conservative back-bench finance committee, said that another round of higher tax increases would be unacceptable to most MPs. He called instead for further reductions in spending.

But the chancellor told the FT he saw little prospect of squeezing further the overall spending targets agreed by the cabinet for the next three years. The targets, the toughest since the early 1980s, allow for growth in spending of less than 1 per cent a year after allowing for inflation.

Mr Clarke said the history of pay norms suggested that 'they do tend to succeed in the first year.' But he added: 'Holding them thereafter has all sorts of downsides, including the inflexibilities and so on which they introduce. We're also very committed to making sure there is no catching on, no bounce-back after the restraint. The longer you keep it on the more . . . the dangers become.'

His view is said to be backed by Mr John Major. But Mr Clarke is aware that several cabinet colleagues believe that it may be impossible for the government to hold to their departmental spending limits unless it maintains a clear line on public-sector pay.

Signalling what is expected to be an intense debate in the cabinet committee charged with dividing up the spending total, Mr Clarke said: 'There are a whole lot of programmes where making a judgment about the pay is very important to the spending round . . . I don't think we're going to come to any decisions about what to do on pay, whether to do it programme by programme; do it across the board; what to do; until we're well into the spending round.'

That left open the possibility that the government might opt to replace next year the present rigid ceiling on actual settlements with a looser, but pre-announced, limit on the public-sector pay bill.

The chancellor used his interview also to stress that he intends to pay much closer attention to the concerns of industry in framing his first Budget. Mr Clarke said he wanted to 'engage' industrialists in discussion of the overall stance of economic policy. He would seek also to 'test' his own ideas for tax and other changes affecting business in a regular dialogue with the captains of industry.

THE Independent Television Commission is to demand that the eight ITV companies which proposed keeping News at Ten at its traditional time when they applied for new licences should stick to their commitment.

The companies have since said they want to move ITN to an earlier slot so that films and dramas can be shown without interruption after 9pm.

Sir George Russell, ITC chairman, and the other members were unanimous on Thursday that News at Ten was a cornerstone of quality on ITV. They intend to do everything they can to keep it at its present time.

The stance means that a clash between the ITC and the ITV companies seems likely, although no formal proposal of any kind has yet been put to the commission.

A formal proposal to move News at Ten will go before the ITV council on July 5 with 6.30pm the current favourite time.

ITV has to show the programme in prime time, which is defined as being between 6pm and 10.30pm.

If the commission is able to hold even one ITV company to a promise to retain News at Ten, that could be enough to prevent the programme moving. The rules state that the main news programme should be broadcast simultaneously throughout the ITV system.

There is no doubt that Sir George is prepared to take tough action to maintain what the commission views as quality in ITV.

Some ITV chairmen are happy to use the threat of News at 6.30 as a lever to win a compromise - News at 10.30.

This too will be resisted by the commission, which believes that 10.30 is too late to begin the flagship news programme. If the commission stands firm on News at Ten the issue could end in the courts.

All the ITV companies which supported News at Ten in their applications - some with qualifications - have received, or will receive, letters from Mr David Glencross, the commission's chief executive, asking why they have all apparently changed their minds only six months into new 10-year broadcasting licences.

ITV argues that the proposal for an earlier evening news is part of a detailed review of the entire network schedule. According to ITV analysis, between 10pm and 11pm it loses its lead to the BBC - in May, for instance, ITV's audience share fell to 35 per cent compared with 46 per cent in the previous hour.

The ITV companies argue that an earlier main news plus an extra bulletin, probably at 11pm, would result in more evening news on the network.

TSMS, the UK's largest television airtime sales house, clients of which include Central and Anglia, yesterday signed a co-operation deal with the Paris-based Information et Publicite for advertising sales and research across Europe.

THE 'long and painful' recession in the construction industry appears to be coming to an end, the latest forecasts from industry leaders show.

These indicate that construction output is expected to fall by only 0.5 per cent this year - just a quarter of the fall it had forecast previously.

The joint forecasting committee for the construction industry - drawn from a cross-section of construction, building materials, banks, and financial and industrial companies - expects construction output to rise by 0.5 per next year and 2.5 per cent in 1995. This would follow a fall in output of almost 10 per cent in 1991 and a decline of 5.5 per cent last year.

The improvement in outlook had been caused entirely by a bigger rise than expected in housebuilding and residential repair and maintenance.

The figures were prepared by Construction Forecasting and Research, which was previously sponsored by the National Economic Development Office. Its forecasts are regarded as one of the best guides of the industry's expectations.

The organisation said yesterday that private-housing activity was expected to increase by Pounds 600m this year, 'leading the UK construction industry out of its two-year slump'.

Its findings are supported by construction order figures published by the Department of the Environment which this week showed that contracts won by construction companies from February to April rose by 10 per cent compared with the previous three months.

Orders were also 1 per cent higher than during the corresponding period last year.

The improvement, however, is patchy, and Construction Forecasting and Research warned that areas of construction other than housebuilding were likely to remain depressed.

SIR BRYAN CARSBERG, the director-general of fair trading, yesterday called for a change in the way life insurance products are sold.

The Office of Fair Trading has proposed to the Treasury a regime where commissions on the sale of life products would have to be disclosed. This follows scrutiny of the new rules made by the Securities and Investments Board after last year's Retail Regulation Review.

Sir Bryan, presenting the OFT's annual report yesterday, said part of the problem faced by consumers in making wise choices among products and life companies was caused by the polarisation in the industry between tied agents and independent financial advisers.

He said: 'At present, you either have to retail the product of one company which means you are a tied agent, or else if you deal in the products of many companies you are categorised as an independent adviser. It seems to me that is a restriction on the market place and it would be preferable to avoid it.'

He suggested the creation of a category called multi-supplier retailers. They would be able sell the products of many companies without holding themselves out as providing independent financial advice.

Sir Bryan said his first year at the OFT had been very active. Although merger activity remained low last year, with the OFT recommending referral to the Monopolies and Mergers Commission of just 125 mergers - 40 per cent of the 1988 figure - the number of monopoly inquiries had increased.

Relations with Mr Michael Heseltine, trade and industry secretary, had remained good even though he had sometimes gone against Sir Bryan's advice.

Co-operation with Brussels was also working well.

THE GOVERNMENT is likely to speed up the review of local government structure in England, Mr David Curry, the new local government minister, said yesterday.

Both Sir John Banham, the chairman of the Local Government Commission, and local authority associations have called for the government's policy guidelines to be changed. Mr Curry says this could be done by allowing districts themselves to propose amalgamations and by making clearer the government's requirements on cost-effectiveness.

Mr Curry, speaking after giving a speech to the conference in Bournemouth of the Association of District Councils, dismissed calls to abandon the review process as 'not a real option'. But he added that the guidance would be changed if that would help all interested parties to reach agreement and if it speeded up the review, which is predicted to last until 1997.

He said that such a long process 'really would be difficult to live with'.

Mr Curry added: 'I am willing to try to come up with a formula which most people are prepared to live with. Sir John himself is saying he would like to review the way the commission goes forward.'

The commission's initial recommendations include controversial proposals for unitary authorities in Derbyshire and Somerset, but Mr Curry said there was quite a strong chance that the 'final shape may be some distance' from the original suggestions.

Mr Curry emphasised in his speech to the conference that he had an open mind on the review. But he repeated warnings made by Sir John that district councils should be realistic and avoid disputes with county councils about the future structure of local government.

He said: 'The purpose of making local government as effective as possible is to deliver the services that people want at the price they want to pay. It is not about the competing claims of vested interests.'

BRITISH Telecommunications yesterday proposed a 'price list' of charges for rival operators to gain access to its network, to avoid the need for detailed negotiations in each case.

The idea is BT's response to plans published this month by Oftel, the telecommunications regulator. Oftel wants rival operators to have a right of appeal to it if they believe BT is overcharging them.

The number of BT competitors is increasing rapidly, so the terms on which they gain access to BT's network are critical to the future shape of the industry.

BT wants to publish two price lists. The first would cover services over which it has in effect a monopoly, such as the use of local networks in most of the country. Prices would be set in agreement with Oftel but with no right of appeal for competitors.

In the second list, covering services for which competition exists - such as trunk lines - prices would be set by BT on a market basis, with no role for Oftel at any stage.

BT argues that appeals to Oftel 'involve a considerable administrative burden and result in still further delay and uncertainty for both parties'. Mr Ray Smith, BT's director of carrier services, said: 'Our proposals provide a predictable, open and fair method of setting and making available interconnection charges.'

Competing carriers needing access to BT's network are unlikely to support the proposal to deny them access to the regulator in cases of dispute.

MR KENNETH BAKER, the former Tory party chairman and cabinet minister, yesterday issued a writ against the Daily Mail in the first legal response to allegations made by Mr Asil Nadir, the fugitive businessman.

His action represents an escalation of responses to Mr Nadir after Mr John Major, the prime minister, and Mr Michael Heseltine, trade and industry secretary, said he should 'put up or shut up'. Mr Philip Conway of Wright Webb Syrett, Mr Baker's solicitors, confirmed the libel action against the Mail's allegations that the MP sought funds from Mr Nadir during a visit to Conservative Central Office while he was Conservative party chairman.

Mr Conway said Mr Baker had 'absolutely no recollection' of this discussion on the one occasion he met Mr Nadir - at a meeting which he said Mr Nadir had requested.

Mr Ivor Cole, legal director of Associated Newspapers, which owns the Daily Mail, said: 'We have only just received the writ. We have no comment at the moment.'

Meanwhile, in interviews on BBC Radio yesterday, Mr Nadir stressed his innocence while refusing to provide any new evidence to support any of his allegations.

'I hope you understand that a person is innocent until he is proven guilty,' he said. 'So everybody has to presume I am innocent until my guilt is proven.'

Mr Nadir said he accepted it was wrong of him to skip bail last month, but said: 'I had no other alternative whatsoever.' He said the gift of a watch from Mr Michael Mates had kept him sane.

He said his donations to the Conservative party had been disclosed in the accounts of a northern Cyprus subsidiary of the company, although the administrators to Polly Peck International say some money came from PPI and not the subsidiary, called Unipac.

It also emerged yesterday that investigators examining the circumstances in which Mr Nadir broke his Pounds 3.5m bail and flew to northern Cyprus believe that he himself masterminded his escape from justice and that there was no big conspiracy involved.

His escape is believed to have been organised at short notice, within the week leading up to his departure from a small airstrip at Compton Abbas in Dorset.

Police are thought - as a result of inquiries over the past two months - to have ruled out suspicions that there might be a 'Mr Big' other than Mr Nadir behind the escape.

But investigations continue into the money to pay for Mr Nadir's escape and into several individuals who are suspected of having acted as accomplices.

Police want to interview two businessmen, Mr David Hamilton and Mr Peter Dimond, who accompanied Mr Nadir on the final stage of his flight to northern Cyprus.

SONY MUSIC Entertainment (UK) has chosen an 80,000 sq ft building in Great Marlborough Street in the West End for its new London headquarters. The building is owned by the Church Commissioners.

Sony would not reveal the financial details of the letting, although the letting agents originally asked for an annual rent of Pounds 25 per sq ft.

THE JURORS in the Nissan UK trial spent their second night in a hotel last night after again failing to reach a verdict.

Mr Michael Hunt, a director of the former car importer, denies two charges of conspiring to defraud the Inland Revenue of Pounds 97m. The Old Bailey jury will continue deliberating today.

TWO SUPERVISORS at Rover's Longbridge car assembly plant in Birmingham were yesterday fined by Birmingham magistrates for breaches of the Health and Safety at Work Act.

Mr Michael Round was fined Pounds 2,600 and Mr Robert Lealand Pounds 2,250 for allowing a safety gate to be removed. After it was removed, a worker was trapped and needed 21 stitches to his throat.

ONE IN 10 pupils in England plays truant at least once a week in the GCSE exam year, a report commissioned by the Department for Education said yesterday.

The survey found that nearly a third of pupils aged 14 to 16 had played truant at least once in the preceding half term. The main reason cited by truants was dislike of lessons, particularly physical education, games and French. Their main complaints about lessons were that they did not enjoy them, found them irrelevant or too hard, or disliked the teachers.

Most truants - 58 per cent - wanted to stay on at school. A third found school enjoyable and a third actively disliked it. The report is based on questionnaires issued to more than 37,000 pupils in their GCSE and pre-GCSE year in 150 English local authority schools.

The report says the situation was worse than results showed because many truants would have been absent from school when questionnaires were handed out.

THE Isle of Man authorities yesterday announced plans to regulate timeshare activities, Sue Stuart writes.

Although hardly any timeshare businesses operate on the island they frequently use Manx companies or trustees. A working party recommended that the island's rules go further than the UK Timeshare Act in terms of consumer protection.

The Manx government hopes the proposed legislation will eliminate the bad publicity the island receives from media coverage of alleged malpractice in timeshare operations involving Manx companies.

The proposed EC directive for the conduct of timeshare business will not necessarily by implemented by the island, which is a self-governing Crown dependency and is outside the EC. The Manx government expects to place draft legislation before parliament by the end of the year.

THE WORD 'champagne' must be taken off bottles of a fizzy, non-alcoholic drink being marketed as 'elderflower champagne', the Court of Appeal ruled yesterday.

The court allowed an appeal by the French champagne producers, led by Taittinger, against a High Court ruling that although the label on the bottles of the elderflower drink was 'a misrepresentation calculated to deceive', the risk of damage to the reputation of genuine champagne would be nil or minimal.

The French were granted injunctions banning Thorncroft, a Surrey-based vineyard, from 'passing off' its product by use of the word 'champagne' and from breaching European Community regulations designed to protect wine producers from the misleading use of their exclusive appellations.

Sir Thomas Bingham, Master of the Rolls, said no one with knowledge of wine would be deceived by the elderflower drink, even though it was sold in champagne-style bottles with wired corks. However, any product which was not champagne that was allowed to describe itself as such must 'inevitably erode the singularity and exclusiveness of the description 'champagne', and so cause damage of an insidious but serious kind'.

Sir Thomas said Thorncroft was anxious to use the word champagne because it imported 'nuances of quality and celebration, a sense of something privileged and special. But this is the reputation which the champagne houses have built up over the years and in which they have a property right.'

Allbev and Thorncroft Vineyard, which make and market the elderflower drink, plan to appeal to the Lords.

THE appointment yesterday of Sir John Wheeler, the lofty and deeply loyal MP for Westminster North, as Ulster security minister signalled determination by Mr John Major to play safe in replacing Mr Michael Mates.

By plucking Sir John from the back benches, the prime minister avoided a wider ministerial reshuffle. He also rewarded an MP who, since he entered parliament in 1979, has seemed unwilling to cause unnecessary waves in Westminster or Whitehall, even when chairing the influential Commons home affairs committee.

There is a logic to his appointment, nevertheless. Sir John is an aficionado of security, crime prevention and policing policies. He was assistant governor at Brixton and Wandsworth prisons before entering parliament. As chairman of the Commons committee he had intimate knowledge of the work of the Home Office.

Sir John, 53, has affinities with Mr Mates, who resigned this week after embarrassment over his links with Mr Asil Nadir. Both served lengthy back-bench apprenticeships and were passed over by Mrs Margaret (now Baroness) Thatcher because of perceived political wetness.

Both have a slightly pompous air. Mr Mates was ex-Army. Sir John would be an archetypal 'knight of the shires' if his constituency was not in London. He was knighted in 1990, and became a privy counsellor this year - usually the rewards of a loyal, long-serving Tory MP not expected to enter the government. Slim but ponderous, Sir John has a near-permanent look of disdain and is far from garrulous, snapping yesterday at television cameras when asked who he had voted for in the 1990 Tory leadership election. The twist in Sir John's career was his toppling from the home affairs committee last year. Government whips were anxious to end the tenure of the troublesome Mr Nicholas Winterton, Conservative MP for Macclesfield, as chairman of the health committee. They therefore decided that MPs should not serve on a committee for more that three parliaments. But they appeared to forget the implications of that ruling for the equally long-serving Sir John.

Ministerial office will be adequate compensation - in spite of the oppressive personal security and the frustrations of working in a province bedevilled by more than two decades of terrorist violence and political intransigence.

Sir John's first priority will be to win, as far as possible, the confidence of unionist and nationalist politicians. To do both is difficult, if not impossible. Unionists want ever tougher measures; many back internment without trial of terrorist suspects. Nationalists lack confidence in the security forces.

Sir John is regarded as generally liberal on law and order, and has opposed hanging terrorists. So any radical change in government security policy is unlikely.

GOVERNMENT grants to companies to help them to meet the extra costs of retaining employees who become disabled are to be halved under new rules.

At present, employers can obtain specialist equipment on free loan, grants for adaptations, help with extra costs of fares to work and 'readers' for blind employees.

From April next year companies will have to make a 50 per cent contribution towards help for employees who have worked for them for six months or more. The employer's contribution will be capped at a level yet to be announced.

The Employers' Forum on Disability, members of which include the high street banks, B&Q and Wellcome, said yesterday any measure that 'discourages employers from developing positive policies on retention (of disabled employees) is very worrying'.

The Royal Association for Disability and Rehabilitation (Radar) said the move 'makes no sense from a government which claims to want to keep people in work'. It said many employers would not be prepared to pay more to retain disabled staff.

Mr Archy Kirkwood, Liberal Democrat spokesman on social security, said the government had 'again chosen to attack the most vulnerable in society'. The move would increase employers' costs and jeopardise disabled people's jobs, he said.

The Department of Employment said yesterday there was 'no question of a budget cut' in the Pounds 13m a year being spent on measures for disabled people at work. The government aimed to widen access to grants and put more resources into getting disabled people into jobs, it said. The scheme benefits 8,000 to 9,000 individuals a year.

Under the new rules, the department said, companies would be expected to pay the cost of one-off items of equipment or help costing less than Pounds 100 for employees with six months' or more service. Employers would not be asked for any contribution for new recruits or employees who had worked for them for less than six months.

There will also be a ceiling on grants for each disabled person over a five-year period. Radar said the ceiling would particularly hit those receiving recurring payments such as help with fares to work.

Both Radar and the Employers' Forum welcomed other changes in the rules meaning that, from next month, unemployed deaf people will be able to get help towards the cost of 'communicators' at job interviews. Grants will also be available towards the cost of personal assistants for employees with other disabilities.

EXPERIMENTS using video cameras in banks' cash dispensers have failed to find evidence that 'phantom withdrawals', where funds vanish from a cardholder's account without their knowledge or permission, are caused by faulty technology.

In every case tested, the cameras pictured the cardholder or a close acquaintance withdrawing the money.

This week a judge cleared the way for a mass legal action against banks and building societies by customers claiming to have lost money through phantom withdrawals.

Banks and building societies - including Bank of Scotland, Barclays Bank, Midland Bank and Derbyshire Building Society - are experimenting with video systems to counter accusations that errors in cash dispensers or main computer systems are responsible for the mystery withdrawals.

The banks have consistently denied that their technology could be at fault in spite of instances of cash machines breaking down.

Bank of Scotland has been testing videocameras in some of its 390 machines over the past year. There was a small but significant number of 'phantom withdrawals', but in no case was the technology found to be at fault. In each case the withdrawal had been made by a forgetful cardholder, or by a member of the cardholder's family or a family acquaintance without the cardholder's permission. Tests by Derbyshire Building Society showed similar results.

Cameras are not likely to become widespread. Video capability adds some Pounds 1,500 to the cost of a cash dispenser and there are some 18,000 in the UK, suggesting a bill for the banks of Pounds 27m.

Cash dispenser fraud costs only about Pounds 3m annually.

Ghosts in the machines, Page 8

MANAGERS at the Rosyth dockyard believe the number of jobs to be lost over its failure to win the Trident refitting contract may be more than double the 450 stated by Mr Malcolm Rifkind, the defence secretary.

Mr Allan Smith, managing director of Babcock Thorn, the company that runs the yard, said it was likely that nearly 1,000 jobs would be lost there. The yard employs 3,700 people.

The dockyard, however, said it was too early to give an exact figure for the number of jobs that would go.

Workers and management at Rosyth reacted angrily to a statement by Mr Mike Leece, managing director of Devonport Management in which he said Devonport would be interested in taking over the Rosyth yard if the government put it on offer. He said he thought Devonport Management could make a better job of running Rosyth than Babcock Thorn.

Babcock Thorn said: 'Mr Leece has totally failed to understand the process we have been going through for the past six months. The Ministry of Defence does not want one company to have a monopoly. We have every intention of staying at Rosyth.'

While awarding the Trident contract to Devonport, Mr Rifkind announced that Rosyth would be allocated refitting work on 18 big warships. These would include two aircraft carriers, one of which would be Ark Royal, and eight Type 42 destroyers. The remaining 50 per cent of the surface-fleet refit work would be open to competitive tender.

The size of the award of surface-ship work to Rosyth has dismayed private-sector shipyards which now see fewer opportunities to bid for refitting work. Sir Robert Easton, chairman of Yarrow, the GEC-owned shipyard in Glasgow, yesterday expressed his disappointment at the size of the cake now likely to be on offer.

But others said Scotland would benefit in another way from Thursday's decision. Weir Group, the Glasgow-based engineering company, owns 30 per cent of Devonport Management and would be expected to work on refitting the pumps of Trident submarines at its plant in Glasgow.

While Mr Smith called for a period of stability for the yard after the intense lobbying of the past few months, politicians and businessmen in Fife demanded that the government set up an independent review of Thursday's decision to award the Trident contract to Devonport.

Mr Henry McLeish, Labour MP for Fife Central, said the government had to realise that it had a fight on its hands. Mr McLeish, a shadow Scottish Office minister, said any review should consider Rosyth's last-minute proposal to cut the cost of refitting Trident at Rosyth by Pounds 70m by using an emergency dock.

That submission was rejected by Mr Rifkind, who described it as 'quite unreasonable'.

Scottish sources close to the dockyard battle believe the last-minute offer put extra pressure on the government and considerably increased the amount of surface-ship repair work which the Scottish dockyard has been awarded.

It is understood that Rosyth's surface-ship allocation was completed in telephone calls between the Ministry of Defence and the dockyard as late as Wednesday afternoon and Thursday morning, and may even have been doubled in that period.

Before yesterday's announcement, some of those campaigning to save Swan Hunter, the Tyneside shipbuilder, had expressed concern that a political carve-up of Navy work between Devonport and Rosyth could do further damage to Tyneside's marine industry by disadvantaging ship repairer A&P Appledore.

But yesterday A&P Appledore, which also has repair yards at Falmouth in and Southampton, said Thursday's announcement did not affect the company. That was because Rosyth had been given warship, rather than support vessel, work.

THE Ministry of Defence has agreed a further fortnight's extension of work on the three Type 23 frigates being fitted out by Swan Hunter, the Tyneside shipbuilder's receivers said yesterday, Chris Tighe writes.

The extension, which runs until July 9, is the fourth since Swan Hunter went into receivership in mid-May after failing to win a crucial helicopter carrier order.

Completing the frigates would give the company work until late next year and improve its chances of winning new orders and finding a buyer as a going concern.

Price Waterhouse, the firm acting as receivers, said yesterday that it was 'very optimistic' that a long-term agreement would be reached with the MoD.

The firm said it would be achieved during the coming fortnight. The complexity of the agreement, caused by Swan Hunter's receivership, is understood to have caused the delay.

Mr Tommy Brennan, Tyne chairman of the Confederation of Shipbuilding and Engineering Unions, met receiver Mr Ed James yesterday together with Swan Hunter shop stewards.

Mr Brennan said the unions were bitterly disappointed that a final agreement to let the frigates be finished on the Tyne had still not been achieved with the MoD.

He said: 'Rosyth has been given work for over a decade, yet they're making such heavy weather of giving an agreement for 12 months' work.

'It's totally astonishing that different rules apply in different places.'

The latest agreement means that the shipbuilder's remaining 1,800 employees, in spite of having work for the next fortnight, continue to face morale-damaging uncertainty.

JAPAN should normalise its economic relations with the rest of the world by redeeming unkept promises to cut its trade surplus and open its markets, Mr Lawrence Summers, US Treasury under-secretary for international affairs, said yesterday.

Mr Summers, in a speech to Japanese business leaders, defended the Clinton administration's insistence on results-oriented trade agreements.

The speech was a comprehensive statement of US economic policy towards Japan ahead of two days of talks, starting tomorrow, aimed at setting up a framework for substantive discussions on trade disputes in areas such as supercomputers and motor parts.

Mr Summers made plain that the US would not soften its call for targets to measure progress in opening the Japanese market.

The US proposals have been widely criticised as managed trade policy requiring the Japanese government to intervene to ensure foreign producers a guaranteed share of a specific market.

Mr Summers said Japan's selective engagement with the world economy created two problems - the large trade surplus and low foreign penetration of the Japanese market.

Foreign producers faced obstacles in Japan which they did not face elsewhere, he argued. The clearest sign of that was Japan's low level of manufactured imports, as well as low levels of foreign investment.

Mr Summers denied he was seeking managed trade agreements to help uncompetitive US companies. He said Washington was focusing on sectors in which US producers found it difficult to establish themselves in Japan even though they outsold Japanese rivals in third country markets such as Europe.

The US was interested in Japanese markets which were not open to competition because they were influenced by government procurement, ruled by a regulated monopoly, such as telecommunications, or where there were close relations between manufacturers and suppliers which excluded new entrants.

Mr Summers said: 'We are seeking to un-manage trade in areas where it is already heavily managed.' He said the US agreements with Japan would help to foster the multilateral trading system by making Japan's trading practices conform more to international norms. To measure the openness of Japan's markets, the US would employ benchmarks commonly used in anti-trust rulings and trade agreements.

He added: 'We are not proposing hair trigger retaliation against Japan based upon a single market share indicator in support of uncompetitive US industries.'

The US wants Japan's current account surplus cut within three years to 1.5 per cent of gross national product, the 20-year average, from about 3.5 per cent at the moment, largely through a higher public spending and lower taxes.

Mr Summers said the extra Japanese demand for imports would create between 1m and 2m jobs elsewhere in the world.

President Bill Clinton yesterday named Miss Christine Gabbie as the co-ordinator of US policy on Aids, and promised that health care reforms now being developed would ensure that Aids patients were 'not victimised by unfair insurance policies', Lisa Bransten writes from Washington. Miss Gabbie, a nurse who was director of Washington state's health department and served on the presidential commission on Aids under Ronald Reagan, will oversee the Dollars 2.7bn Aids budget.

A consultative meeting of donors in Paris has made preliminary commitments worth Dollars 2.1bn (Pounds 1.41bn) for 1993-4 in support of Ghana's economic reform programme, writes Michael Holman, Africa Editor. A statement by the World Bank, which chaired the two-day conference, said the pledges exceeded the Dollars 1.7bn seen as the minimum level needed to meet Ghana's import requirements over the two years. The group 'commended the government for its success in implementing its courageous and comprehensive reform programme.'

Lithuania yesterday became the last Baltic country to introduce its own currency. After several postponements, the Bank of Lithuania finally launched the litas at 4.5 to the US dollar.

Japan plans to extend about Dollars 120bn (Pounds 81bn) in foreign aid in the next five years, almost twice the amount it disbursed in the previous five years, making it the world's biggest donor, writes Charles Leadbeater in Tokyo. The aid programme is designed to promote private capital investment in developing countries and undermine foreign criticism of Japan's growing trade surplus.

Britain yesterday reported 'a little progress' in the sixth round of talks with China over British plans to widen the franchise in Hong Kong, writes Tony Walker in Beijing. Sir Robin McLaren, Britain's ambassador in Beijing, is to report to a special UK cabinet session on Hong Kong amid signs of growing British frustration with the pace of the talks.

The threat of widespread industrial action at Hyundai, South Korea's largest conglomerate, appeared to recede yesterday, raising hopes that the country will not be convulsed by labour strife this year, writes John Burton in Seoul.

Workers at Hyundai Precision, a container and jeep manufacturer, who initiated labour action within the giant industrial group on June 5, agreed to return to work after they gained concessions on job conditions following the mediation of the labour minister, Mr Rhee In-je.

Daewoo also faces industrial action, but the government hopes that resolution of the Hyundai disputes will persuade Daewoo workers to drop their proposed action.

Ms Kim Campbell, sworn in as Canada's first woman prime minister yesterday, has named her new cabinet, cutting the number of ministers from 39 to 25 as part of a sweeping government reshuffle, writes Bernard Simon in Toronto.

The new finance minister is Mr Gilles Loiselle, a bilingual Quebecker. Mr Perrin Beatty was named to the external affairs portfolio, while Mr Jean Charest, Ms Campbell's main rival in the Conservative leadership race, becomes deputy prime minister. Ms Campbell, whose Progressive-Conservative party is lagging in the polls, is expected to call a general election in the autumn.

TURKS and Kurds clashed in the streets of Germany yesterday, prompting officials to threaten deportation as a way to prevent Kurdish separatists from importing their war to German soil. Turks and Kurds, who have lived side by side for decades, expressed concern that Thursday's attacks by Kurdish militants in 16 German cities could inflame anti-foreigner sentiment and set back their campaign for more civil rights and protection from neo-Nazi extremists.

Meanwhile the German government yesterday promised tougher security for Turkish property after harsh criticism from Ankara that they had failed to protect Turkish targets from a wave of attacks by Kurdish separatists. The militant Kurdistan Workers' party (PKK) claimed responsibility for the attacks on Turkish missions, banks and travel agencies across western Europe, and for holding hostages for 14 hours in the Turkish consulate in Munich.

NIGERIA'S military President Ibrahim Babangida pledged yesterday to install a democratically elected president on August 27, the date originally scheduled for the handover to civilian rule.

It was not immediately clear how General Babangida planned to implement his promise and he provided no further details.

A presidential spokesman suggested he would authorise a rerun of last month's presidential elections, which he annulled earlier this week.

The US said yesterday it did not trust assurances he would soon turn the country over to elected officials. Mr Mike McCurry of the State Department said: 'Given the events most recently, there will have to be much more proof in the pudding before we rely on those statements.'

The US has cancelled about Dollars 1m (Pounds 667,000) in non-humanitarian aid to Nigeria and is reassessing all aspects of relations with Africa's most populous country.

Gen Babangida, who seized power in a 1985 palace coup, made his pledge yesterdayafter briefing senior military and police officers on the outcome of a meeting of his top military-civilian council. Later his spokesman said the decrees authorising the transition to civilian rule 'had been suspended and not repealed', leaving open the possibility he may be having second thoughts.

'We shall install a democratically elected government on the 27th of August for this country,' Gen Babangida saidin Abuja, the federal capital.

But his remarks, ahead of an address to the nation, gave no clear indication he was prepared to reverse his decision to annul the June 14 presidential poll which pitted Moshood Abiola against Bashir Tofa, or to order the election to be held again. Mr Abiola emerged the comfortable winner.

'We are committed to democracy,' Gen Babangida said. 'We are committed to our democratisation process. . . We shall install a democratically elected president that will meet the aspirations and the yearnings of our vision of Nigeria of the 21st century.' Dressed in full military uniform, he said he would address the nation today. 'I am going to tell you how we intend to do it.'

THE Indonesian government has imposed a six-month overseas travel ban on more than 300 businessmen amid growing concern at the size of the bad debt carried by Indonesia's state banks.

The identity of those affected has not been published but all have bad debts with the state banks of at least Rp250m (Pounds 80,000).

Government officials say the travel ban complements a recent confidential report into the worst of the state banks' corporate debtors conducted by Bank Indonesia, the central bank, and the attorney general's office.

An unauthenticated copy of the report, circulating in business circles for the past week, indicates that 26 leading companies - many politically well-connected, including three led by relations of President Suharto - are not servicing loans totalling Rp6,900bn from six state banks.

Bank Indonesia has refused to confirm the report despite intense questioning of Mr Sudradjad Djiwandono, central bank governor, by members of the parliamentary finance committee this week.

He has publicly maintained the official line that the banking sector's bad debts - including both state and private banks - amount to only Rp3,500bn, while many of the companies cited in the alleged report have denied they are in default to the state banks.

Total outstanding credits of the sector are about Rp130,000bn, of which state banks account for 55 per cent.

Executives of private banks, however, believe the sector's non-performing loans may be as high as Rp20,000bn.

The World Bank, which last year made a Dollars 300m (Pounds 200m) loan to help recapitalise the state banks, described the banking system in Indonesia as 'under strain' in a report last month.

Indonesian cabinet ministers have pledged to tackle the bad debt issue, regarded as a potential Achilles heel of an otherwise robust economy.

However, the central bank report, if true, will leave President Suharto - who has proven averse in the past to acting against businesses he considers loyal to his regime - with some difficult decisions.

Economists fear the travel ban will affect only relatively minor debtors while more influential people, who are better able to service their loans, will be allowed to move freely.

AT a UK construction company which is one of the Conservative party's biggest donors, one executive went on the offensive this week.

Commenting on the row which has flared in parliament and the press over corporate contributions to the Tories, he declared: 'Take a look at Italy, or even the good old US,' he said. 'By comparison, what happens in the UK is tiny.'

The executive's point is partly justified. The dispute in Britain centres on what the Labour party calls a Pounds 15m 'credibility gap' - the difference between the Conservative party's declared total of Pounds 19m in donations during the run-up to the 1992 general election, and the Pounds 3.7m in publicly disclosed contributions, detailed in companies' annual reports. The rest comes from undisclosed individual and foreign sources.

The gap is indeed small compared with the Pounds 1bn-plus hole in the accounts of the Italian parties, which are at the centre of financing scandals which have undermined the country's political structure.

In the US, trading cash for influence is an accepted part of the political system. Ex-President George Bush awarded a dozen ambassadorships to members of Team 100, individuals who had given at least Dollars 100,000 to the Republican Party. Ms Pamela Harriman, the English-born widow of the US statesman Averell Harriman, gave about Dollars 75,000 (Pounds 50,000) to Democratic candidates last year, and is now US ambassador in Paris.

In the main industrialised countries there are a plethora of reasons why parties give - or do not give - to political parties, but Britain has been some way down the list of countries where malpractice is prevalent.

In Italy, there is often a precise and mutually beneficial relationship between payments to political groupings and rewards in the shape of extra orders. Mr Carlo de Benedetti, the chairman of Olivetti, the computer and office equipment group, has recently denounced as 'racketeering' the routine payments of Italian companies to pay kickbacks to political parties to win contracts. He says his company was forced to make such payments to win orders from the posts ministry.

Total bribes and kickbacks paid annually by Italian companies to win contracts have been estimated at L5,000bn to L6,000bn (Pounds 2.2bn-Pounds 2.64bn), much of which has ended up in the pockets of the political parties.

Fiat, the big motor group, has brought in a code of conduct forbidding payment of kickbacks by its employees. If such initiatives prove workable, they would have a dramatic effect on Italian business life.

In the US, too, restructuring of party financing is on the political agenda. For 20 years the most efficient means of disbursement has been via political action committees (PACs), which 'bundle' together and pass on contributions from individuals and special interests either directly to candidates or, to get around ceilings on such donations, to the two political parties.

President Bill Clinton wants to ban PAC contributions and stop the transmission of such so-called 'soft money' to candidates. His bill to reform campaign finance has already passed through the Senate without substantive alteration. Mr Clinton and Mr Bush each got Dollars 55m (Pounds 37m) from the federal purse, plus about another Dollars 10m from their respective parties, to fight their campaigns last year, but refused to accept PAC contributions. Mr Ross Perot, the maverick free enterprise candidate, paid for his own campaign - about Dollars 70m.

Sometimes, corporate attempts to gain a hold over the levers of power can go disastrously wrong. In Japan, which has one of the most extensive networks of legal and illegal payments linking big companies and the government party, the most obvious failure was the Tokyo Sagawa Kyubin scandal. In the hope of gaining influence, the company illegally donated at least Y500m (Pounds 3m) to Mr Shin Kanemaru, the disgraced power-broker of the Liberal Democratic Party. The company has since had to be financially restructured, while the executives involved are on trial for breach of trust. Mr Kanemaru had to resign, and is facing tax evasion charges.

In Canada, which has well-developed rules for disclosure, many of the largest contributors - to both political parties - are businesses which have a poor public image and are thus under threat of political action (such as the big banks and the tobacco companies).

In Spain, corruption involving channeling of funds to state authorities and party interest appears to be endemic in the construction industry. 'It is part of everyday life, built into the business you could say,' said a senior executive in a leading construction company.

Germany's Siemens electrical group has been caught up in allegations of payments of at least Pta825m (Pounds 4.23m) to a group of Spanish intermediaries linked to the ruling Socialist party. Siemens' prize was to clinch a Pta100bn contract in 1989 to provide electrification along the 471kms of high-speed train tracks that link Madrid and Seville.

Siemens says the payments were bona-fide commissions representing an agreed percentage of the final contract.

In France, which like Spain has had its share of recent funding scandals, companies are coy about their political contributions - although greater disclosure will be required next year under a recently-passed law. Mr Bernard Arnault, chairman of Louis Vuitton Moet Hennessy (LVMH), the French luxury goods group, who describes his company's gifts as 'extremely modest,' says the rationale behind them is: 'You can't separate yourself from the life of the nation.'

In similar terms, Deutsche Bank, one of the largest donors in Germany, says it gives money to all parties 'to support democracy.' The chairman of its supervisory board, Mr F. Wilhelm Christians, said recently the bank had given no money to the opposition Social Democrats 'because they didn't ask.' Sometimes, big companies can think of good reasons not to give money. BASF, the German chemicals giant, says loftily it makes no donations to political parties because 'it is part of the company's culture to be neutral.'

Sir Patrick Sheey, chairman of BAT Industries, the tobacco and financial services conglomerate, says it makes no donations in the UK because 'as a multinational that stands you in better stead.' In Canada, however, BAT's 42 per cent owned associate Imasco, is one of the country's largest political contributors, giving about CDollars 48,000 (Pounds 25,000) each to the Liberals and Conservatives in 1991.

Cynics might note that Imasco owns Imperial Tobacco, which has a 66 per cent share of the Canadian cigarette market; whereas in the UK, BAT sells no cigarettes.

Contributors: David Marsh, Jurek Martin, Tom Burns, Charlie Leadbeater, Bernard Simon, David Waller, Robert Graham

USA

Donations come through political action committees, which raised Dollars 65m last year. Largest contributor was 'Emily's List', which paid Dollars 6.2m to get more women elected to Congress. Other big donors were the National Association of Realtors (Dollars 3.0m), American Medical Association (Dollars 2.9m), International Brotherhood of Teamsters (Dollars 2.4m), Association of Trial Lawyers (Dollars 2.4m), National Education Association (Dollars 2.3m), United Parcel Service (Dollars 1.5m), AT&T (Dollars 1.3m).

JAPAN

The Keidanren federation of employers associations agrees about Y13bn of Liberal Democratic Party funding each year, which is then parcelled out to industry federations and companies. 1992 donations by companies included: Oil Companies Association, Y91m; Japan Steel Association, Y91m; Sakura Bank, DKB Bank, Fuji Bank, Mitsubishi Bank, Sumitomo Bk, Long Term Credit Bank, Y88.9m each; Tokyo Bank, Y88.3m; and Nippon Steel, Y75m. The Sohyo Centre, of labour unions that support the social democratic party, gave Y100m last year.

GERMANY

In 1992, Daimler-Benz gave DM1.5m to four parties and Deutsche Bank gave DM535,000 to the coalition parties. In 1991, North Rhine-Westphalian Metal Industry Association gave DM625,000 to the coalition parties, and DM75,000 to the SPD. The biggest-ever donor was the former East German government, which paid DM65m a year to the West German communist party.

FRANCE

The biggest donors tend to be large construction companies, such as Bouygues, Compagnie Generale des Eaux and Societe Lyonnaise des Eaux.

UK

The biggest contributors to the Conservative party in 1992 were: United Biscuits (Pounds 130,000), Taylor Woodrow (Pounds 124,500), P & O, and Hanson (Pounds 100,000 each), Forte (Pounds 80,500). Mr Asil Nadir's Polly Peck International gave Pounds 440,000 over five years up to March 1990. Other past donors include: Mr John Latsis, Greek shipping billionaire (Pounds 2m), Mr Li Ka-Shing, Hong Kong businessman, (Pounds 100,000). Biggest contributors to Labour party in 1991: Transport and General Workers' Union Pounds 1.8m, out of overall trade union affiliation fees of Pounds 4.3m.

ITALY

Many large Italian companies are caught up in scandals over illicit party financing, along with several multinationals (Siemens, GEC Marconi, Ericsson). Olivetii admits it paid nearly L20bn (Pounds 8.5m) in bribes to the main political parties, particularly the Christian Democrats and Socialists, since 1978. Among engineering companies, Saipem paid Dollars 121m in commissions between 1987 and 1992, while Nuovo Pignone paid L25bn. Fiat admits paying bribes on a range of public works contracts.

CANADA

The ruling Progressive Conservatives raised CDollars 12m from almost 34,800 contributors in 1991. About 55 per cent of the total came from companies and 45 per cent from individuals. Top companies tend to make roughly equal contributions to the Conservatives and the main opposition party, the Liberals. Top contributors in 1991 were: Canadian Pacific CDollars 60,884 Conservatives, CDollars 65,000 Liberals; Ernst & Young CDollars 38,674 Conservatives, CDollars 27,127 Liberals; Imasco (42 per cent owned by BAT Industries), CDollars 48,013 Conservatives, Dollars 47,500 Liberals; RBC Dominion Securities CDollars 57,098 Conservatives, CDollars 46,872 Liberals; Royal Bank of Canada CDollars 44,091 Conservatives, CDollars 43,336 Liberals.

WHILE his opponents took to cruising the streets of Tokyo in gaudy loudspeaker vans this week to rally voters for a metropolitan assembly election tomorrow, Mr Toshio Terayama adopts a more modest approach. At 25 the Japan New party's youngest candidate, he campaigns on a banner-festooned bicycle.

After last weekend's political upheaval, the city election will be a pointer to the outcome of the parliamentary election on July 18. It will test the strength of the reformist parties including the JNP as well as what remains of the ruling Liberal Democratic party.

'You don't have to spend so much on election campaigns, and I'm here to prove it,' says Mr Terayama. He tells his listeners that he will try to narrow the gap between politics and the electorate.

The move to unravel the old money-driven political system dominated by the LDP has struck a chord with younger voters, who have been discouraged by the spate of corruption scandals within the ruling party.

Many voters are showing greater interest in the local polls than in the past, when turnout has been below 60 per cent.

'I haven't voted since I got married, but I'm interested this time,' says a housewife in her twenties listening to Mr Terayama, while Mr Hiroaki Sawazaki, a 30-year-old writer, says: 'It's easy to be cynical, but it's our generation that has to bring in changes.'

Some local LDP candidates are expected to follow Mr Tsutomu Hata, the former finance minister, who split from the LDP this week to form his own party. A few candidates have covered up the LDP name on their sashes with tape or concealed the LDP logo on their campaign posters with stickers supporting political reform.

Meanwhile, many politicians in the provinces have also indicated that they want to defect from the LDP. Even those who have chosen to remain with the ruling party have refused campaign support speeches from Mr Kiichi Miyazawa, the embattled prime minister.

According to a poll of 900 voters published on Thursday by the daily Asahi Shimbun, 20 per cent said they would vote LDP, down from 25 per cent in 1989, while the JNP came in second with 10 per cent support. The survey - conducted on Sunday and Monday before the formation of the two newest groupings - indicated that the Social Democratic party, the largest opposition party, could be hit the most, with a support level of 9 per cent, down sharply from 17 per cent.

With political reform as the only concrete issue even on the local level, voters are increasingly confused by the sprouting new parties. Voters say it is hard to differentiate among them. 'I've voted LDP until now, but I don't really know who I'll vote for in the local election,' says a middle-aged housewife who put down her groceries to listen to a campaigner.

Mr Terayama says he is trying to promote social welfare. But his main message consists of the need for cleaner politics and ousting the LDP.

Whether candidates like Mr Terayama backed by the new reformists can arouse many among the electorate who have been turned off by the spate of bribery and tax evasion scandals, remains to be seen.

It will take more than good weather to lure the electorate to the polls. Some voters, who for a long time have felt their votes would not make a difference, remain complacent.

'I might vote this Sunday if I have the time. It's hard when you have children, you know,' says another housewife, as she scurries past the campaigner.

Japan plans to extend about Dollars 120bn (Pounds 81bn) in foreign aid in the next five years, almost twice the amount it disbursed in the previous five years, and making it the world's biggest donor, writes Charles Leadbeater in Tokyo.

The aid programme is designed to promote private capital investment in developing countries and undermine foreign criticism of Japan's growing trade surplus. Japan argues that the surplus does not damage the world economy because it recycles its export earnings as a capital outflow to the rest of the world.

SOUTH AFRICA'S right-wing whites, some of whom yesterday drove an armoured car through the plate glass front of the country's constitutional conference centre, have long had the arms, the skills and the organisation to disrupt a peaceful transition to democracy in the new South Africa.

Yesterday saw the first worrying signs that they might also have the determination to do so.

About 1,000 heavily armed police took little action against the members of the Afrikaner Weerstandsbeweging (Afrikaner Resistance Movement), who stormed the World Trade Centre outside Johannesburg, beat up black women delegates and journalists, and defiled the walls of the negotiation chamber with slogans demanding an Afrikaner homeland and accusing the ruling National Party of treason.

Terrified delegates fled the centre, leaving about 100 men and women, - all toting weapons - occupying the chamber where South Africa's first multi-racial constitution is being written. About 3,000 more waited outside.

Many protestors cited the fact that, on the eve of the assault, constitutional negotiators had voted by an overwhelming majority to deny the demand of the right-wing Conservative Party (which represents ultra-radical whites) for Afrikaner 'self-determination' in a separate white state.

Nonetheless, within hours, the 26-party negotiating forum was back in business, with the chamber walls repainted to cover right-wing slogans, and even the Conservative Party (which helped lead the attack) seated at its accustomed place. Once again, the centre held; but it had another nasty shock.

THE United Nations world human rights conference ended in Vienna yesterday evening with the adoption of a grand declaration designed to give a new impetus to the protection and promotion of international human rights.

The declaration approved by the conference, reaffirmed the principle that human rights were 'universal, indivisible, and interdependent'. However, they failed to agree on a controversial call for the appointment of a UN Human Rights Commissioner to monitor and promote human rights.

As weary delegates from over 160 countries raced to reach a consensus on a final declaration, debates continued to reflect deep differences of opinion on what constitutes human rights and the best way to promote them. The differences were most marked between the developed north and developing south.

On Thursday, Islamic and African states separately and sucessfully demanded that the meeting adopt strongly-worded declarations on Bosnia and Angola. This broke a tacit agreement that specific countries should not be mentioned.

The moves threw the conference, which opened two weeks ago, into confusion and delayed proceedings on a final declaration.

The conference also adopted a declaration calling for the immediate sending of aid to Angola and an end to the country's civil war.

Developing countries were concerned that the appointment of a commissioner would strengthen what they see as western bias and lead to intrusion in their domestic affairs. To meet their criticisms the declaration also recognised the right to development as a basic human right.

But a joint statement from some of the 1,500 non-governmental organisations at the meeting said the declaration failed to commit governments to measures to protect and promote human rights.

BOSNIAN Vice President Ejup Ganic yesterday warned that Europe would face a wave of terrorism if it backed a partition of Bosnia.

In an interview in the besieged capital of Sarajevo, Mr Ganic painted a picture of a Lebanon-style conflict that could result in a campaign of violence if the international community abandoned a united Bosnia.

Mr Ganic and President Alija Izetbegovic boycotted yesterday's meeting of the Bosnian collective presidency to discuss the partition proposed by Mr Radovan Karadzic, the Bosnian Serb leader, and his Croat counterpart Mr Mate Boban.

Bosnia's Moslem leaders have rejected the partition because it would 'legitimise ethnic cleansing' and would confine the Moslems to reservations in economically unviable micro-states.

Mr Ganic predicted the war would last for 10-15 years. He lashed out at Britain and France, saying Bosnia's Moslems had 'naively' believed they would win backing from both countries. He said the Moslems, Bosnia's biggest ethnic group, which has been decimated by the war, were the victims of Europe's prejudices against Islam.

'I don't want to be responsible for terrorism, but it will happen, especially in Europe. I don't want to participate in that,' he said.

Mr Izetbegovic is fighting for political survival after a challenge from Mr Fikret Abdic, the third Moslem representative on Bosnia's 10-member rotating leadership.

Moslem and other United Nations members have forced a public debate, probably to be held on Tuesday, on whether to lift the UN arms embargo on Bosnia and allow air strikes on Serb artillery.

A draft resolution on that approach, also favoured by the US but rejected by the European Community, was approved on Thursday night for debate. The US position was unclear, though the resolution was designed to cater to President Bill Clinton's wish to lift the arms embargo on the Bosnian Moslems.

Sarajevo radio yesterday reported an upsurge of fighting in Zepce, Zavidovici and Maglaj, towns north of Sarajevo. It also said there were renewed clashes west of the capital. In an attempt to stave off the carve-up of Bosnia, Moslem-led Bosnian forces are trying to gain control of key towns to link up their enclaves.

In Belgrade, Serbian President Slobodan Milosevic cemented his hold over what remains of Yugoslavia, now comprising Serbia and its tiny ally Montenegro, when the federal parliament elected Mr Zoran Lilic as president.

'This is the sort of president that Milosevic conceived. Lilic is his Serbian puppet sitting on top of the two-republic federation,' said a western diplomat based in Belgrade.

As president, Mr Lilic will also be the supreme commander of the Yugoslav army, which ensures that Mr Milosevic will have total control over the armed forces.

THOUSANDS of shareholders in the Vladimir Tractor Plant, 200km east of Moscow, met in a football stadium this week to decide who should lead their newly-privatised company.

The uneven competition, complete with posters, programmes and snacks, indeed had all the trappings of a football game.

But despite being younger and better trained, Mr Iosif Bakaleinnik, a Russian graduate of Harvard Business School who controls 12 per cent of the shareholder votes, failed to take over as chief executive from Mr Anatoly Grishin, the old-style manager who has run the plant for 18 years.

The 40-year-old challenger's convincing presentation of plans to improve incentives for workers, and to prepare the company for competition, failed to sway a majority of shareholders, who voted for the certainty represented by 60-year-old Mr Grishin.

Pitted against Mr Bakaleinnik were not only fears of what one worker described as 'more revolutionary changes in our lives' but the vested interests like those of Tractorexport, the state organisation which exports the plant's tractors and controls 10 per cent of shareholders' votes through a proxy.

Powerful propaganda before the meeting included a warning from the regional administration chief that 'a Harvard education does not train you to tackle the difficulties of the Russian economy'.

Mr Bakaleinnik, who was the plant's finance director until he went to Harvard, did manage to secure a seat on the board of directors however and promised he would be back to fight for the top job.

In the absence of of any experience of capitalism, many workers made their decision on the basis of parallels with Russian politics. Mr Bakaleinnik should not be trusted because, like President Boris Yeltsin, he made a lot of nice promises but would probably not keep them, said Mrs Nadezhda Baranova.

But Mrs Galina Chernishova displayed the sort of stoic faith in the future that has helped account for much of Mr Yeltsin's popular support. 'Change is happening all over the world. Why shouldn't we have it at our company?' she said. 'Things won't improve for us but at least our children will live well.'

RUSSIA'S special prosecutor for corruption yesterday stood by his demand that two of President Boris Yeltsin's closest aides should resign in order to facilitate an investigation into allegations by Vice-President Alexander Rutskoi.

Deputy prosecutor general Nikolai Makarov denied that his call on Thursday for the resignation of Mr Vladimir Shumeiko, first deputy prime minister, and Mr Mikhail Poltoranin, the presidential aide who runs the state-owned media, was politically motivated. But he said the two men could use their high position to influence the course of the investigation.

Vowing to sue Mr Makarov for slander, Mr Shumeiko said yesterday his accusations were a 'provocation' designed to help parliament resist Mr Yeltsin's attempts to push through a new constitution and new parliamentary elections. The prosecutor general's office has tended to side with parliament over political reform.

Mr Shumeiko is one of the driving forces behind Mr Yeltsin's Constitutional Convention, which today reconvenes after a 10-day intermission to resolve differences in hammering out a draft constitution.

Mr Yeltsin has promised top officials will be equal to ordinary citizens before the law, but has sometimes given conflicting signals on his determination to wage 'all-out war' on corruption.

THE global settlement between the liquidators and depositors of the collapsed Bank of Credit and Commerce International (BCCI) could be placed at risk as a result of the a Dollars 1.5bn (Pounds 1bn) law suit against Sheikh Zayed bin Sultan al-Nahyan, the leader of Abu Dhabi.

The suit, filed in a US court by First American Bank, secretly and illegally acquired by BCCI, alleges that Sheikh Zayed, his family and senior former First American officials such as Mr Clark Clifford, the former US defence secretary, were guilty of racketeering, conspiracy and fraud.

Mr Clifford was indicted last year in New York on charges of accepting bribes and lying to US bank regulators.

The suit says the Abu Dhabi ruler and his government were to blame for financial damage caused by the BCCI affair because he was 'the dominant and controlling shareholder' of BCCI since 1972.

Specifically, it says Sheikh Zayed and his colleagues were responsible for reducing First American's sales value by Dollars 500m and caused a loss of Dollars 1bn of deposits.

In Washington, Mr Caffey Norman, a lawyer for Sheikh Zayed, denied the allegation and said he was 'outraged' and would contest the charges.

This is the first such legal action against the ruler of Abu Dhabi, whose government has repeatedly denied any guilt in the BCCI affair. It comes amid mounting speculation in the US that either federal prosecutors or Mr Robert Morgenthau, the New York district attorney, may be planning to indict Abu Dhabi officials.

The suit could have wide-ranging implications because it is a rare US legal action against a foreign head of state and because it could derail the planned settlement for BCCI depositors agreed last year by liquidators and Sheikh Zayed's government.

In Cairo, Dr Adil Elias, chairman of the BCCI depositors committee, said he supported the legal action and would ask BCCI liquidators to reconsider the deal they agreed last year with Abu Dhabi in light of the lawsuit.

ITALY'S Christian Democrats yesterday unanimously rejected an offer to resign by Mr Mino Martinazzoli, the party leader.

The resignation offer followed the party's poor performance in administrative elections this month.

Mr Martinazzoli's attempt to stand down from his job, ostensibly in response to the electoral setback, also reflects his mounting frustration at the failure of senior party leaders to rally to his calls for reform and a stream of recent leaks to the press by party members opposed to change.

A special party conference, expected on July 15-17, could be the last chance to stave off a split between reformists, who are demanding a change of name and strategy, and those opposed to radical change.

The Christian Democrats have been linked to some of the worst excesses of the corruption scandals and top party figures who allegedly took kickbacks have refused to step down.

The party lost control of a number of big Italian cities in the local elections and saw their support shrink in much of the country, including parts of the south where they had traditionally been the dominant political force.

Earlier this year, Mr Mario Segni, one of the most popular politicians in the country who headed the referendum movement, left in frustration at the party's inability to promote reform from within.

PRESIDENT Bill Clinton yesterday hailed Senate passage of a five-year, Dollars 500bn (Pounds 333.3bn) budget-reducing plan approved by a 50-49 vote in the early hours of the day.

'We can now move on to a (House-Senate) conference committee with a clear signal to the financial markets that its interest rates should stay down,' he said.

'For the first time in a very long time, an American president can go to a meeting of the G7 nations in a position of economic strength, trying to lead a renewal of growth and opportunity all over the world.'

Mr Clinton acknowledged that the Senate bill had been changed 'to some extent' from his own version, but also praised his Democratic colleagues for having shown 'a remarkable degree of courage'. If the economy fails to pick up steam, both he and they will have to bear the blame from a constituency which gives little credit for valour.

Senate and House Democrats, having passed packages which broadly conform to the president's wishes, will have no time to gloat about victories achieved without any Republican support. A conference to resolve their differences could begin as early as next week and tough bargaining lies ahead. A final vote is expected late next month or early in August.

The close vote in the Senate emphasises the challenge for the budget negotiators. Six Democrats deserted the president, and Vice President Al Gore was forced to cast a tie-breaking vote.

Both versions of the bill achieve budget reduction, but the House version would do more to achieve tax redistribution from the wealthy. The House agreed to a modified version of the president's proposed broad-based energy tax, which the Senate rejected in favour of a 4.3 cents-a-gallon fuel tax (with an exception for jet fuel). The conference is expected to produce something to broaden the fuels tax.

Both bills raise top corporate tax rates from 34 to 35 per cent and reduce deductions for business meals and entertainment from 80 to 50 per cent. They ban deductions for lobbying, club dues and executive pay over Dollars 1m. Both allow investment tax credits on machinery, although the House was more generous.

Mr Clinton indicated that he would push for a resurrection of his investment incentives so states such as California, hit hard by defence cuts, will get offsetting jobs growth. 'You can't create jobs out of thin air,' he said.

The House voted to restrain the growth of the health care programme for the elderly by Dollars 50bn over five years. The Senate added another Dollars 10bn to its bill. Both houses agreed to a repeal of luxury taxes on yachts, aircraft, jewels and furs.

Mr Leon Panetta, the budget director, yesterday laid out the administration's bottom line: Dollars 500bn in deficit reductions, progressivity and a broad-based energy tax.

The president, who positioned himself above the fray in the Senate, now seems prepared to take a stronger role in the negotiations. 'If you look at the level of aggression this country has displayed in trying to do something about its economic circumstances as compared with what is going on in these other nations. . . the US should be very proud,' he said.

THE European Bank for Reconstruction and Development was set up in 1991 to guide the recovery of a region stricken by the legacy of totalitarian rule.

Establishing the bank's credentials amid recession in western Europe and severe economic restructuring in the east was always going to be a difficult challenge. Had the dispute over Mr Attali's role in the bank's spending persisted, that task would have become impossible.

The bank's hope must now be that its planned management shake-up and a return of confidence of its main shareholders will give it the means to get on with the job.

Both the US and Germany have shown in recent weeks their strong doubts about Mr Attali's suitability - although neither wanted to call openly for the president's dismissal.

Even now, however, restoring the bank's sense of purpose will be an uphill struggle. One seasoned London merchant banker, who knows Mr Attali well and likes him, said he increasingly believes the decision to set up the EBRD was a mistake.

Although without experience of managing a bank or even a department of a public sector institution, Mr Attali was chosen to head the EBRD in view of the visionary qualities he would bring to the post. In that respect, at least, he has lived up to expectations.

No European public figure has been more assiduous in calling for a new spirit of economic co-operation to unite east and west. With passion, he has warned of the danger that conflict in the former Soviet republics and Yugoslavia could spill over into the rest of Europe.

Yet, through his own misjudgment, Mr Attali has himself produced the debacle from which the institution is now trying to escape.

As a result of the bad publicity, doubts over the bank's role already voiced at its inception have intensified.

Scepticism remains whether the EBRD will be able to find a niche in assisting eastern Europe, at a time of difficulties for both public sector development institutions and private sector banks in the region.

The nature of the EBRD's remit itself will be under review as the bank's 56 shareholder nations and agencies get down to the task of choosing Mr Attali's successor.

In particular, questions are being asked about the balance of the bank's activities in the 25 countries which it can assist. The proposed appointment to a senior EBRD position of Mr Ernest Stern, the present number two at the World Bank, has been widely interpreted as presaging a shift towards public sector development projects.

Supporting the idea of shifting resources to infrastructure development, one official in Paris said yesterday: 'The bank's statute that 60 per cent of its lending should be to the private sector could be interpreted more flexibly, particularly in the bank's early years. Spending more on public infrastructure now would help the private sector later.'

The bank's relatively slow rate of disbursements - one of the reasons it has attracted complaints - has partly reflected its statutory priority towards financing private sector development.

Since it started at the beginning of 1991, the EBRD has disbursed Ecu244m (Pounds 192m) in loans and equity.

This is less than 20 per cent of its commitments of Ecu1.5bn, and only about 11 per cent of the total of Ecu2.3bn of projects approved.

Its disbursements thus are only slightly more than the Ecu180m in loans to eastern Europe paid out by the European Investment Bank, the EC's own long-term financing institution.

The bank, which has started to lend east of the Community, focuses its funds on infrastructure projects.

A recent internal report commissioned by Mr Attali, complaining about the EBRD's lack of impact in eastern Europe and the former Soviet Union, brought to a head criticism of the bank's activities.

The report - by Mr Martin Paijmans and Mr Stanley Katz, consultants who have worked for the EBRD - accused the EBRD of failing to make a 'coherent' contribution to east European transition.

Of the 95 projects approved by the EBRD since its inception, over 51 per cent have been in the four most economically advanced countries of Poland, Hungary and the Czech and Slovak republics.

Greater concentration on infrastructure development, particularly in former Soviet republics without any experience of private sector entrepreneurial activity, might thus be a logical move. The risk of such a move, which has attracted criticism from several of the bank's directors, is that the EBRD would evolve into little more than the European arm of the World Bank.

In Warsaw yesterday there was some support for the idea that the EBRD should move into the area until now favoured by the World Bank.

Mr Jan Krzysztof Bielecki, Poland's minister in charge of relations with the EC, said he would like to see the EBRD more involved in infrastructural projects such as transport and telecommunications ventures.

'The EBRD should take a lesson from the European Investment Bank,' he said.

Mr Bielecki suggested the EBRD take on the task of guaranteeing loans made by other lenders in Poland. But he also said the EBRD should lend to and invest in small private business rather than larger, safer projects.

Ms Hanna Gronkiewicz Waltz, the head of the Polish central bank, signalled she was happy with the EBRD's emphasis in favour of private industry by praising the EBRD's activities as being 'in accord with our general priorities'.

She said the scale of the EBRD's involvement in Poland was larger than elsewhere and that this was a trend which could only be encouraged in the future.

Mr Janusz Dedo, in charge of credit policy at the Powszechny Bank Kredytowy, a major state-owned bank in Warsaw, said: 'We have had good relations with the EBRD and the main thing is that changes at the top shouldn't be too abrupt.'

Mr Hubert Janiszewski, the head of Samuel Montagu Financial Services in Warsaw, warned that ongoing projects might now be changed although he felt the bank's record had been 'positive'.

In Hungary, Mr Imre Tarafas, an alternate governor of the EBRD and first deputy president of the National Bank of Hungary, was determined to put the events of the last few months behind him. He said he hoped the appointment of a replacement for Mr Attali would end the 'internal tensions and uncertainty'.

Jacques Attali's resignation letter to the chairman of the European Bank for Reconstruction and Development, Mrs Anne Wibble

Dear Mrs Wibble,

It is with regret that I inform you of my intention to resign the presidency of the European Bank of Reconstruction and Development. I stated during the Annual Meeting that the interests of the Bank would always be my highest priority and would dictate my decision.

I am deeply honored to have served as President of this institution since it was conceived, at a crucial moment in history, at the initiative of the Government of France. The Bank's achievements in encouraging democratic market economies in Eastern Europe speak eloquently of the dedication, talents and professionalism of its staff. Through their hard work, their remarkable skills and their international character, the Bank will continue to play a leading role in the future of the region.

As you know, the Bank has come under increasing negative press attention in recent months. I know of no action that I have taken that in any way could be worthy of reproach. Unfortunately this attention has begun to have a detrimental effect on the Bank's work and on its staff, and it is with the interests of the Bank in mind that I have taken this decision.

As we agreed during our conversation this morning, it is my intention to remain in my position until a successor is elected by the Board of Governors and has taken office.

Yours sincerely,

Jacques Attali

'I UNDERSTAND AND RESPECT HIS DECISION'

Mrs Wibble issued the following statement:

In my capacity as Chairman of the Board of Governors of the European Bank for Reconstruction and Development, I have today been informed by Jacques Attali about his intention to resign as President. Considering recent events, I understand and respect his decision.

I will call a meeting with my Vice Chairman and the President to discuss the transition and the procedures for the nomination and election of a new President in accordance with the provision of the Agreement Establishing the Bank.

Jacques Attali has been instrumental in setting up the European Bank, which has an important mandate to support the transition to market economy in Eastern Europe, in particular through the development of the private sector. I acknowledge that the institution has become fully operational with remarkable speed under the energetic leadership of Mr Attali. I am convinced that the achievements of the Bank will be fully recognised once the recent turbulence has subsided.

THE European Bank for Reconstruction and Development's board room, which is a quarter of the size of a football pitch, was an appropriate venue for Mr Jacques Attali's farewell.

The onslaught of criticism faced by Mr Attali in the past three months began on April 13, when the Financial Times disclosed that the bank had spent Pounds 200m on itself in its first two years, including Pounds 55.5m fitting out its City of London headquarters. Of this sum, several millions had been spent on the boardroom, including its oval designer desk, sophisticated translation facilities and trompe l'oeil book case.

At 10.30am yesterday, Mr Attali entered the boardroom and told the bank's 23 directors, who represent the 56 countries and agencies which own the bank, that he had decided to resign. 'The attacks have been growing day by day,' he said. 'It is better for the institution that I take this decision.'

Most of the directors received the news in silence. Many were relieved, concerned at the tide of bad publicity and convinced that new management is required. But of the three who did speak out, all offered praise. 'Thank you for what you have done for the bank,' Mr Guiseppe Maresca, the Italian director, told the meeting. 'This board will take care of your baby.'

Mr Maresca was paraphrasing Mr Attali, who at the annual meeting at the end of April had referred to the bank as his 'baby'. It was partly as a result of his initiative that the EBRD had been set up in April 1991.

His original vision was that the EBRD should be a publicly- owned institution which assessed its investments as rigorously as a blue chip investment bank, while being explicitly motivated by the political goal of promoting democracy and free markets in the fledgling private sector of the former Soviet bloc.

It was a vision unique and complex as the man himself. Mr Attali had never worked as a banker, although he wrote a biography of Sir Siegmund Warburg, the founder of SG Warburg. But he chose to ignore one of his subject's main strictures, that banks should never spend lavishly on their offices.

At the age of 49, friends say he still thinks of himself as an anti-establishment figure, having been born into an Algerian Jewish family. However, he was educated at France's elite National School of Public Administration, his brother, Bernard, is chairman of Air France, and he spent most of the 1980s as the special adviser to the French president, Mr Francois Mitterrand.

His intellectual and physical appetite is legendary. He has published 16 books and starts work before dawn each day, although this has not prevented him becoming an habitue of London nightspots.

But perhaps his most salient characteristic is his capacity to arouse passions in others. 'People either love him or hate him,' said a close colleague. 'You won't find many who are indifferent.' To some, he is Renaissance man, to others a dilettante. There is evidence for both views.

On the one hand, he has probably been the west's most articulate analyst of the problems faced by the former Soviet Union and eastern Europe. On the other, he has been accused - though he vehemently denies it - of plagiarism in his new 960 page book, Verbatim, which records Mr Mitterrand's life at the Elysee Palace from 1981 to 1986.

Perhaps inevitably, the EBRD's staff has been split between those, mostly francophones, close to Mr Attali, and a group which felt itself outside the charmed circle. 'There was a bank within a bank,' said one executive. 'In terms of who wielded power, titles were less important than being a friend of Mr Attali.'

This inner group included Mr Pierre Pissaloux, who originally held the roles of both cabinet director and budget director, but who has since relinquished his budget role, Mr Francois Olive, Mr Attali's personal assistant, Mr Guy de Sellier, the deputy head of merchant banking and Mr Andre Newburg, the general counsel.

Like many French statesmen, notably Mr Mitterrand, Mr Attali believes that public buildings should be monuments. It would have been unthinkable for him to scrimp on the bank's headquarters.

But the bank's US, UK and Australian employees and directors judged the building's fitting out costs extravagant, notably the decision to replace one type of brand new marble with another at a cost of more than Pounds 750,000. They were also angry at Mr Attali's use of private jets. In 1992, the bank paid Pounds 739,000 for him to make 26 journeys by private aircraft supplied by a Paris-based charterer, Air Entreprise. Some of the destinations were well served by scheduled flights.

The bank's audit committee is now investigating whether proper procedures were followed on the building and why Mr Attali used the private flights, as well as examining other allegations of extravagance and loose financial controls. A deadline of July 15 has been set for the report to go to the EBRD's board.

However, the board's preoccupation in the past few weeks has been whether the bank should change its philosophy of concentrating on making investments in the private sector to devote more resources to developing the infrastructure of eastern Europe.

This issue had become confused with the question of who should manage the bank, since Mr Attali had presented a management reorganisation proposal whose effect would have been to concentrate more resources on development banking, or investing in infrastructure.

Level-headed debate within the bank on this issue became difficult, since Mr Attali's plan was viewed by some as an attempt to reinforce his own position. 'We were discussing personalities, rather than the issues,' said a director.

The reorganisation also had the effect of demoting Mr Ron Freeman, the first vice president and head of merchant banking, from number two to number four in the bank. This plan, which is still under consideration by the board, would have involved the appointment of Mr Ernest Stern, currently number two at the World Bank, to the new post of EBRD chief operating officer and the promotion of Mr Mario Sarcinelli, currently in charge of development banking at the EBRD, to take charge of the budget and personnel.

The result was open warfare between Mr Attali's supporters and his opponents. Mr Freeman, having in April written an article in the FT defending the EBRD's expenditure on refurbishing its offices, felt betrayed. 'Morale here is terrible,' said one executive yesterday. 'The personnel department has been inundated with resignation notices.'

The final external blow was a story in yesterday's FT that Mr Attali had double-billed his expenses on a trip to Tokyo. Mr Attali wrote in his resignation letter that he knew of 'no action that .. in any way could be worthy of reproach,' but he felt he had to go.

The obituaries, like the earlier reviews, will contain wildly varying views. As one senior east European diplomat put it yesterday: 'He had the vision. But he was, well, just a bit arrogant with us. I hope his successor is as committed to integrating the two Europes.'

THE GOVERNMENT will throw its support behind British Nuclear Fuels' controversial Thorp reprocessing plant on Monday. It is also expected, however, to announce a further round of public consultation, which might delay a final decision for months.

The Pounds 2.8bn plant at Sellafield in Cumbria, which environmental pressure groups call Britain's biggest white elephant, is waiting for a licence from the Department of the Environment to begin operation. The government will call for the Commons to support 'the commissioning of the plant at the earliest practicable date', its most forthright endorsement in the year-long debate over Thorp's future.

The wording is contained in a draft amendment to be offered by the Department of Trade and Industry, BNF's shareholder, to a motion from the Liberal Democrat leader attacking Thorp. Monday's motion from Mr Paddy Ashdown says: 'There are increasingly strong economic, environmental and (nuclear) proliferation reasons why it would not be in the interests of Britain or the rest of the world for the government to bring Thorp into operation.'

The DoE's expected second round of public consultation follows advice from the attorney-general that it needs to consider the wider diplomatic, economic and environmental issues raised by the plant if it is to avoid the risk of judicial review.

Environmentalists last night accused the government of pre-empting the DoE licensing decision with the amendment. Greenpeace, the pressure group, said: 'If the government does not call a full public inquiry, we will see them in court, and press for a judicial review.'

The draft amendment includes the words 'subject to receipt by BNF of such consents as are required by law', which appears to leave the way open for a public consultation or inquiry.

Swiss and German customers of Thorp wrote to Mr John Gummer, environment secretary, this week, to express their concern at the delay in starting up the plant, which was originally planned for January this year. The DoE is also expected to announce on Monday the publication of the long-awaited report by the government's Radioactive Waste Management Advisory Committee, which predicts that large amounts of nuclear waste from Thorp's foreign customers will remain at Sellafield permanently.

BNF has agreed to keep much of the bulky low and medium-level waste produced by reprocessing foreign customers' nuclear fuel, and to send them back a smaller volume of highly radioactive waste.

The Royal College of Nursing failed in the High Court to obtain a public inquiry into the murder of four children by hospital nurse Beverley Allitt. A private hearing is planned.

MR Jacques Attali yesterday said he will resign as president of the European Bank for Reconstruction and Development, the aid bank he was instrumental in creating two years ago.

He will remain in place until a successor is elected by the board of governors.

His decision follows months of criticism of the bank's financial controls, including the disclosure in the Financial Times yesterday that Mr Attali had been reimbursed twice for a first-class return flight to Tokyo in May 1992 and that he had been paid Dollars 30,000 (Pounds 20,000) for making a speech in Japan.

Over the past three months, the bank has been criticised for its slowness in making investments in eastern Europe and the former Soviet Union - which it was set up to do - and also for the Pounds 55.5m it has spent on furnishing its offices and additional sums spent on the use of private jets and other overheads.

A bank executive said Mr Attali made up his mind to quit early yesterday morning. He telephoned Mrs Anne Wibble, the Swedish finance minister and chairman of the EBRD's finance directors, to tell her his decision.

In a letter to Mrs Wibble he said: 'The bank has come under increasing negative press attention in recent months. I know of no action that I have taken that in any way could be worthy of reproach.' The letter continues that this 'attention' has begun to damage the bank and that 'it is with the interests of the bank in mind that I have taken this decision'.

In a statement released after Mr Attali's resignation, Mrs Wibble said: 'Considering recent events, I understand and respect his decision . . . I acknowledge that the institution has become fully operational with remarkable speed under the energetic leadership of Mr Attali.'

Mr Attali called an impromptu meeting of the bank's 23 directors, who represent the 56 countries and agencies which own the bank, to say he would be leaving.

'The announcement was greeted with relief from most of us,' said a director. 'Morale here has hit bottom.' However, the directors representing France, Belgium and Italy thanked Mr Attali for his contribution.

Directors immediately began discussing in informal meetings how fast a replacement should be found and whether to go ahead with Mr Attali's planned management reorganisation.

Three people were mentioned by directors as possible successors to Mr Attali: Mr Onno Ruding, the former Dutch finance minister, currently working for the US bank Citicorp, who came close to being appointed head of the EBRD before it was set up; Mr Karl Otto Pohl, the former president of the German Bundesbank; and Mr Jacques de Larosiere, the governor of the Banque de France.

A director said there was an understanding between the governments of the G7 group of leading industrial countries, who control 54 per cent of the EBRD's shares, that the president should be a European, although not necessarily from a European Community member country.

In France, reaction to the resignation of Mr Attali, who was adviser to the French president, Mr Francois Mitterrand, from 1981 to 1991, was mixed.

Mr Roland Dumas, a former foreign minister and close associate of President Mitterrand, said 'the Anglo-Saxon establishment' had brought Mr Attali down. Officials in the conservative Balladur government reiterated France's attachment to the bank, but said it was open to changes.

Page 2 'He had the vision. But he was just a bit arrogrant' Bank faces uphill fight

MR John Major sought yesterday to calm the political storm over the Conservative party's links with Mr Asil Nadir, the fugitive businessman, by insisting that the resignation of Mr Michael Mates had drawn a line under the affair.

The prime minister's comments came as senior ministers rallied to support his authority. Mr Douglas Hurd, the foreign secretary, dismissed the prospect of any challenge to Mr Major's leadership as a 'dead duck'.

Mr Hurd admitted yesterday the government had had a rough year, with 'a run of misfortunes and certainly mistakes', but said that Mr Major's authority was not in doubt.

He believed the government was at a turning point, where the underlying realities of economic recovery and increasing party unity would come through.

There was foreboding, however, among Tory MPs that the furore over the fugitive businessman might be revived in a resignation statement by Mr Mates, who is expected to attack the handling of Mr Nadir's case.

The government was also confronted by the threat of a backlash from Tory MPs over taxation. Several MPs on the right of the party reacted angrily to the suggestion from Mr Kenneth Clarke, the chancellor, that he might raise taxes in the November Budget. The MPs called instead for much deeper cuts in public spending to reduce the borrowing requirement.

Mr Major appeared shaken by the barrage of media criticism of his handling of Mr Mates' resignation on Thursday, with aides describing him as 'furious' at the coverage.

His frustration at the persistent questioning of his authority was also apparent in his own comments yesterday. 'Prime ministers are there to be criticised. Whatever had happened, I think I would have been criticised. That is the way of life for prime ministers,' he said in his Huntingdon constituency.

Calling for an end to the concentration on the Mates affair, Mr Major said: 'It's over, it's finished,' and appealed for the former minister to be left alone for a while. Sir John Wheeler, a veteran backbencher, is to succeed Mr Mates as Northern Ireland security minister.

Editorial Comment, Page 8

Baker sues Daily Mail on Nadir allegations, Page 6