Market report: Thursday close

THE recommendation of the industry regulator to limit water price rises over the next five years to just 13% - less than half the amount the City expected - has muddied prospects for some of the big utilities.

Ofwat's proposals mean the average household bill will rise by £33 through 2005 to 2010 from £249 to £282, against 30% demanded by the utilities which supply and maintain our water system.

They are under pressure to spend billions updating Britain's ageing infrastructure over the next few years. To do that, they need to generate more profits. Cash reserves will come under pressure and, in turn, may force them to cut dividends.

The only course left will be to turn to the City to raise extra funds. That could prove an expensive way of doing things - the market has little appetite for water companies and is certain to extract its pound of flesh.

As with all these things, there are winners and losers. Among those thought to have emerged unscathed from the recommendations are Pennon, up 25 1/2p at 770 1/2p, United Utilities 12 1/2p at 523p, Kelda 10 1/4p at 523 1/4p, Severn Trent 15 1/2p at 811 1/2p, and Anglian 4 1/2p to 614 1/2p.

But there were losses for the smaller companies such as Bristol Water, down 6 1/2p to 400p, East Surrey, down 2 1/2p to 301 1/2p, and Northumbrian, who ended the day just 3/4p stronger at 137 1/4p.

Shares generally posted modest gains after the Bank of England's monetary policy committee raised interest rates a quarter-point to 4.75%. The FTSE 100 ended the day 5.3 points higher at 4413.4, as the Dow Jones Industrial Average was 6.27 points stronger at 10126.51.

The City gave a cautious thumbs-up to forecast-beating interim results from Barclays, up 11 1/4p at 481 1/4p. Heavy turnover in the shares yesterday led to speculation that a bid from Citigroup in the US, the world's biggest financial services provider, may be imminent.

But healthcare group Smith & Nephew became the latest blue-chip to get a kicking, tumbling 52 1/2p to 481p. Last month, it touched 614p but brokers say the company is in danger of going ex-growth.

Satellite broadcaster BSkyB rallied 15p to 503p. But the City remains unimpressed with chief executive James Murdoch, son of 30% shareholder Rupert, and his strategy of ploughing more funds into the company which has seen a dramatic tailing off in the number of new subscribers.

US broker Morgan Stanley has downgraded from overweight to equalweight and says the £450m spend on marketing and relaunching of the Sky brand will hit earnings' forecasts during the next few years.

Lehman Brothers, which has cut from overweight to underweight and slashed its target from 825p to 600p, warns of increased competition. UBS has kept the shares as a buy but lowered its sights from 800p to 725p, while Goldman Sachs has chopped its earnings forecast for 2005 by 11% to 27.5p a share, and for 2006 by 23% to 30.5p.

BOC ended the day 2p lower to 912 1/2p but broker Credit Suisse First Boston has revised its target from 950p to 930p and reduced its operating profit forecast, while repeating its neutral rating. It reckons the shares continue to be underpinned by a 4.4% yield.

News of 350 job losses, the closure of 10 offices and widening losses at the online travel agent pushed down Lastminute shares 19p to a new low of 107p.

Debt-laden Eurotunnel's woes deepened as its shares retreated a further 1 1/4p to a record 14 1/2p.