Megadeal Rumours Boost Drug Sector; MARKET REPORT

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RUMOURS of an imminent mega drugs deal swept dealing rooms late yesterday.

SmithKline Beecham advanced to 760p before closing 14p higher at 748p amid speculation that SB's boss Jan Leschly is holding takeover discussions with Basle-based Novartis, Europe's biggest pharmaceuticals company.

Institutional pressure on Leschly to revive its [pounds sterling]110bn merger with drugs rival Glaxo Wellcome (26p down at 1540p) has been enormous. Top fund managers were furious that the deal perished because of a personality clash between Leschly and his GW counterpart Sir Richard Sykes.

Novartis, created from the merger of Ciba and Sandoz, poached Jerry Kara-belas, number three at SmithKline Beecham, to head its global pharmaceuticals operation in December.

He had been with SmithKline since 1981. Dealers believe he has persuaded the new Novartis management, led by Daniel Vasella, to move on SmithKline knowing that Leschly needs to do a deal.

Meanwhile, Zeneca, the UK's third largest drugs company and perennial takeover favourite, soared 150p before closing 120p higher at 2530p. Turnover was a mediocre 1.8m.

Apart from the usual Astra takeover talk, optimists suggested that if SmithKline Beecham and Novartis should get together, Glaxo Wellcome could move for Zeneca.

Zeneca's chief executive Sir David Barnes recently said for the umpteenth time that the company had received no approaches, but might make acquisitions.

Elsewhere, Personal Equity Plan fund buying ahead of the April 5 tax year deadline swept shares higher.

Fund managers were rushed off their feet as investors continued to take advantage of Chancellor Gordon Brown's Budget decision to raise the limit for transferring funds from Personal Equity Plans (PEPs) into Independent Savings Accounts (ISAs).

The Footsie jumped 71.4 points before Wall Street opened. But when the Dow Jones lost a 48-point rise to trade 74 down, the Footsie slipped. It closed 33.7 up at 5939.3.

Gilts eased [pounds sterling] 1 / 8 on renewed fears that the Bank of England Monetary Policy Committee will raise UK interest rates a further 1 / 4 pc to 7.5pc at their next meeting on April 8/9.

Committee member Willem Buiter reinforced expectations that rates will rise when he said on Thursday that if the pound was to fall, it would have inflationary implications. …