Market report: Monday close

THE Sars epidemic could spell the end for some of the best-known national airlines if the virus takes hold in Europe. That was the stark warning today from US securities house Goldman Sachs as it downgraded the European airlines sector to cautious.

It says it could be 'game over' for some flag carriers. There are clear signs of them heading the way of the US majors with falling revenues and rising costs. The spread of the virus could tip some over the edge, it warns. 'Even if it doesn't, anaemic economic growth will not paper over the industry's structural problems,' warned one of its analysts. Malaysian Airlines estimates Sars has already cost it £22m in lost revenue.

If some airlines fold, it could pave the way for carriers such as Ryanair, up 1p at 430p, and British Airways, up 5 1/2p to 122p, to grab market share. Goldman continues to rate Ryanair outperform along with BA, which is reckoned to be the long-term winner in any flag carrier restructuring within the industry.

Goldman has downgraded its earnings forecast for Deutsche Lufthansa, SAS and Royal KLM Dutch Airlines. It has also lowered BA from 4.27p to 2.73p a share and predicts an overall loss of 7.98p a share in 2004.

Share prices generally traded in narrow limits, unable to glean any inspiration from Wall Street after the Dow tumbled 134 points on Friday. In thin trading, the FTSE 100 index closed up 70.1 points at 3940.3 at the start of a busy week in terms of economic news and company trading results.

Shire Pharmaceuticals plunged 29 1/2p, or 7.02%, to 390 1/2p after saying its first skin patch treatment for attention deficit hyperactivity disorder failed to get clearance from the US drug authorities. Last month, Shire signed a $150m (£94m) deal with Noven for the Methypatch which was meant to boost its lead in such treatments.

A two-way pull has developed in electrical retailer Dixons, up 1/2p at 111 1/2p. Broker Merrill Lynch has downgraded from neutral to sell and warns that trading has deteriorated as the group faces up to the inquiry into extended warranties by the Competition Commission.

Rival broker Credit Suisse First Boston has downgraded from outperform to neutral and says the problem of extended warranties is far from over. Goldman Sachs takes the view the whole issue has been overdone and has raised its recommendation from in-line to outperform. Evolution Beeson Gregory remains a buyer and has a 12-month target of 130p. It has also raised its pretax profit forecast for the current year by £9m to £318m.

Financial Times and Penguin publisher Pearson firmed 11 1/4p to 550 1/4p as investment bank JP Morgan cut its earnings forecast for the year 7% to 33p. It is cautious about the outlook for newspaper advertising.

Text messaging specialist LogicaCMG rose 14 3/4p to 112p. The shares are trading at less than 10 times earnings and broker Collins Stewart has moved from sell to hold.

GlaxoSmithKline was 4p better at 1257p despite planning to slash the price of its anti-Aids drug Combivir to developing countries by as much as 47%. AstraZeneca, up 43p at 2424p, is reporting first-quarter numbers on Wednesday that are expected to show the ravages of growing competition from generic rivals.

Prices and indices in this section are supplied from various sources and calculated at different times and may not always match those listed on the site.