Also weighing on the stock was a downgrade from Bear Stearns

Also weighing on the stock was a downgrade from Bear Stearns. Cutting its stance to “neutral” from “outperform”, the US broker argued that there is no hard evidence to suggest that a takeover of Exel is imminent.Meanwhile, BT gave up 3.5p to 204.25p after Morgan Stanley was heard warning its clients that the telecoms group faces increasing competition in the UK. The US broker believes that margins at BT will contract by more than is being expected by the market especially at its broadband and outsourcing divisions. The insurer spent most of last year trying to sell the company but failed leaving many in the City disappointed. It is believed to have held extensive negotiations with Royal Bank of Scotland and MBNA, the US credit card giant.
At the time, rumour had it Prudential wanted 200p a share for its stake in Egg, which valued the whole company at pounds 1.6bn. But analysts believe it is unlikely to achieve such a price tag today.

Since the deal fell through, Egg has been busy tidying up its affairs and has done well to sell-off its loss-making French division to the Dutch financial services group, ING.In the FTSE 100, Exel dropped 41p to 832p as bid rumours subsided. This was the weakest quarterly performance in two years, held down by a surge in imports.The main bright spot was strong consumer spending – though much of that went on goods from abroad.The rise in short term rates contrasts with the decline in 10 year yields – a “monetary paradox” caused by massive Chinese and Japanese purchases of longer bonds to recycle their huge trade surpluses with the US. However, the rumours are by no means new and if they do prove to be correct it will not be the first time that Prudential has tried to divest of its offshoot. Most analysts believe this to be 3.5 or 4 per cent – suggesting that several more rate increases are in the pipeline, barring a major slowdown in growth..

CITY PUNTERS were busy piling into Egg shares from the start of trading yesterday, convinced that Prudential, the internet bank’s biggest shareholder, is finally going to sell the group. Egg, where Prudential has a 79 per cent stake, saw its shares close 8.75p higher to 116p in heavy trading. These have now become a major worry for the Fed, as it faces a current account deficit running at an annualised $650bn (pounds 345bn) – 6 per cent of GDP – and a forecast 2005 federal budget deficit of $427bn, according to the White House.In his State of the Union address last night, President George Bush was expected to repeat his pledge to halve the budget deficit and impose real spending cuts across government, excluding defence and national security.The Fed began to raise interest rates last summer to a level it considers “neutral”, that neither hinders growth nor fosters inflation. These showed that policymakers believed the funds rate was “below the level” needed to damp inflation.

The result was speculation that the Fed would move with larger, 50 basis point steps, in contrast to the “measured pace” thus far.But the latest GDP figures, showing the US economy grew by just 3.1 per cent in fourth quarter of 2004, have dampened these expectations. If the economy continues to grow at a 3 or 3.5 per cent or so, then they’ll go on racheting up rates, to 3 per cent or a bit higher.” Even so the Dow and other Wall Street indices – slightly higher before the Fed announcement – moved further ahead afterwards, almost certainly in relief the Fed did not take more vigorous action.The dollar has risen 3 per cent against the euro since 4 January, when the Fed released minutes of its last meeting on 14 December. “He thinks the policy setting is right, and he wants to keep things exactly the same. Events since the last meeting haven’t forced him to change his mind.”Bill Gross, of the PIMCO investment funds group, predicted the Fed decision would have a smaller long-term effect on markets “They won’t move much.

And, using the words whose omission would have sent jitters through the markets, it said future rises in rates would be “at a pace that is likely to be measured”.Yesterday’s rise is the sixth consecutive quarter-point increase since last summer, when the central bank began to nudge its benchmark short term rate up from a 45-year-low of 1 per cent.”The chairman [Alan Greenspan] is very happy with the status quo,” commented the former Fed vice-chairman, Alan Blinder. Wrapping up its first session of the year, the central bank’s policy- making Federal Open Market Committee increased its target federal funds rate from 2.25 per cent to 2.5 per cent – and used virtually identical language to describe the move as it did for the previous 25-point rate rise in December.
The Fed’s stance “remains accommodating”, it said, and coupled with “robust underlying growth in productivity,” would continue to support economic growth. Despite higher energy prices, it added, current and future inflation prospects remained “well contained.”Exactly as in December, the FOMC judged the upside and downside risks to the economy to be balanced. A land grab is expensive but what Sky is saying is that it is doing a measured land grab.”Expenditure on advertisements jumped 72 per cent for the half-year to pounds 43m.