Investors turn to drugs giants to steady jitters and sustain market rally

BRITISH stock market investors will turn to drugs and drinks companies this week, for evidence of whether British firms can repeat the earnings revival shown by US counterparts, seen as a key to sustaining the recent rally.

Europe's two biggest drugs firms, GlaxoSmithKline and AstraZeneca report third quarter results, and spirits firm, Allied Domecq reports full-year results.

Its bigger rival Diageo is set to update on trading.

Also stepping up to the plate, on one of the liveliest reporting weeks of the year, will be oil major, Shell and accounting software firm, Sage Group .

Investors said strong third quarter earnings from US companies this week had lifted optimism that improving economic data is filtering through to company profits, finally pulling companies and economies out of a three-year slump.

"There is a lot factored into some of these prices now, but what is encouraging is that there's still a lot of positive surprises, and analysts haven't fully factored in the operational gearing," said Derek Mitchell, director of UK equities at Isis Asset Management.

"In the past two years companies have been ripping costs out, so when you start to see a recovery it feeds through very quickly to the bottom line," he said.

The buoyant mood lifted the FTSE 100 share index to a 14-month high of 4,383 points on Wednesday last, before easing back to around 4,340 midmorning on Friday, up 0.6% on the week, and up more than 6% already this month.

Dealers said despite a generally optimistic mood, concern the rally had gone too far too fast, was holding the FTSE in check.

The jittery mood may intensify this week on the anniversary of the 1987 stock market crash, when the FTSE 100 tumbled 22% in two days.

Ten blue-chip firms are due to report or offer guidance this week, representing a 21% weighting of the FTSE index.The biggest of them, GlaxoSmithKline, reports on Wednesday, after last month reaffirming guidance for high single-digit earnings growth or better in 2003.

Rival AstraZeneca follows the next day, when it should update on sales of its cholesterol drug Crestor seen as the key product in its bid to plug a sales and earnings gap, left by falling sales of its heartburn and ulcer pill Prilosec/Losec.

On the same day Shell is expected to say quarterly profits have jumped about 50% from a year ago, fuelled by higher oil, natural gas and fuel prices.

Insurers, Legal & General, and Aviva, both issue quarterly business figures, and rival Prudential will be influenced by results from online bank, Egg .

There continues to be speculation that Prudential is considering selling its 79% stake in Egg.

Technology stocks have been buoyed this week by US counterparts signalling that spending on IT and software is perking up. The last remaining FTSE tech stock Sage will move into the spotlight when it updates on trading on Monday.

The main domestic economic interest is Wednesday's release of minutes from the Bank of England's last meeting, which will signal if any policymakers want to raise interest rates yet.