Market report: Monday close

FEARS about al Qaeda links to the Madrid bombings resurfaced today, adding further woe for investors unnerved by growing doubts about international economies, and in particular the domestic regime in Budget week.

Travel and leisure stocks remained under the cosh, led by British Airways, down 19 1/2p to 269p, and InterContinental Hotels, 17 1/2p weaker at 512 1/2p. Easyjet fell 14p to 309p. Cruises operator Carnival seems likely to lose the lucrative business of many US tourists who fly to Europe for Mediterranean cruises, and its shares sank 69p to 2367p.

Last week's big loser, Royal & SunAlliance, fell another 4 1/4p to 88 3/4p on worries about the cost of mis-selling. Prudential dipped 17 1/4p to 465 1/2p, Legal & General slipped 3 1/2p to 95 1/2p and Friends Provident lost 5 3/4p to 144 1/4p as profit-taking hit the sector. With financials looking so weak, the FTSE 100 index retreated 54.5 points to 4412.9.

Vodafone suffered a Smith Barney cut in its target price to 148p from 163p although it maintained its hold recommendation, leaving the mobile phones giant's shares adrift by 3 1/4p at 130 1/4p. Colt Telecom failed to respond to a CSFB upgrade to outperform from neutral and an improved target price of 110p, falling 1p to 99 1/2p.

BAE Systems could be entering a new era of good relations with its main customer, the Government, if it installs Dick Olver, currently deputy chief executive of BP, as its chairman. Relations between Whitehall and BAE have been at a low for months and 57-year-old Olver, who has worked for BP for more than 30 years, has long experience of dealing with politicians.

Speculation that BAE will not counter-bid in the agreed takeover by US Abrams tank maker General Dynamics of Alvis, which makes the British battle tank Challenger, left the market believing the British armaments group will be content to take the money from its

29.9% stake in Alvis and perhaps seek another US partner. But the bears are in control, and 8 1/2p was knocked off BAE's share price at 187 3/4p. Alvis retreated 7 1/2p to 289 1/2p.

Dutch telecoms group Royal KPN is unlikely to increase its offer for mmO2, having been spurned by the BT spin-off at 110p a share. There were hopes in the market that KPN would return with a better offer or that another bidder would emerge. MmO2 shares slipped 6 1/2p to 100 1/2p.

The non-life insurance sector came to life as Highway Insurance gained 4p to 37 1/2p after confirming it is in talks with Cox Insurance, up 1/2p at 87p, that could lead to a bid. Goshawk Insurance rose 1/4p to 41 1/4p and Altrium strengthened 2p to 228p.

Oil giant Shell is still suffering the after-effects of the decision of its now-departed executives - chairman Sir Philip Watts and exploration and production director Walter van de Vijver - to admit that its oil reserves had been overestimated by 20%.

The Financial Services Authority has initiated an investigation and the shares fell another 4 3/4p to 368 1/2p as Lehman Brothers cut its stock rating to underweight. Lehman still likes BG Group, which stayed put at 322 1/4p even though forecasts of more corporate activity in the sector could benefit BG in the long run.

UBS Warburg upgraded BP,lifting the shares 2 1/4p to 448p.

Manchester United fell 6 3/4p to 258p as the team's Premiership championship challenge appeared to be over after losing to Manchester City.