The shares have underperformed as takeover speculation has diminished and worries surfaced about the performance of the Direct Line insurance off-shoot

The shares have underperformed as takeover speculation has diminished and worries surfaced about the performance of the Direct Line insurance off-shoot. NatWest point out it downgraded for this year from pounds 658m to pounds 618m. But Royal Bank's premium to the sector, say NatWest, is now "very modest and, given the medium term scope for upside surprises on profits, the shares are looking more attractive".Matthew Clark, reflecting the Credit Lyonnais Laing support, gained a further 16.5p to 761p and MFI, the furniture stores chain, continued to bask in a Kleinwort Benson recommendation with a further 8p gain to 180p.Micro Focus, the software house, continued to attract support, mainly American, gaining 45p to 898p.Lonrho slipped 5.5p to 207.5p as the closer involvement with Anglo American, the South African mining giant, was judged as reducing the chance of a bid. The Tories will, no doubt, redouble their efforts to keep the economy moving ahead and the key part of any election campaign will be tax cuts, on present form announced in the Budget, delivered in April. In off-the-cuff comments at a Frankfurt dinner Joachim Kroeske, finance director of Deutsche Telekom, let slip the German group had more than a passing interest in Cable.The Germans have been canvassed as a potential buyer of Cable's Mercury telephone off-shoot but this is the first time they have let it be known that an outright bid is a possibility.The election result also encouraged suggestions of more economic relaxations.

Whether such an alliance would lead to a bid is, however, unclear.Cable & Wireless gained 9p to 535p as the Germans expressed interest. Speculation the proposed bids will be cleared lifted South West Water 18p to 714p.Ladbroke was back in the frame. In brisk trading the shares edged forward 1.5p to 183.5p with a deal with Hilton Hotels Corporation of the US now the market's favourite option. Against such a background East Midlands jumped 34p to 658p; London 10p to 809p and Yorkshire 15p to 898p. Even debt laden Northern Electric rose 21p to 679p.Waters were also flushed into action. So the need to get deals done and dusted before any election had, following the Staffordshire South result, become even more pressing.The takeover fever was encouraged by what appeared to be a leak of Whitehall's intention to clear PowerGen's bid for Midland Electricity and National Power's offer for Southern Electric.PG surged 13.5p to 562.5p and NP 14p to 492p The targets also responded with Midland up 7p at 405p and Southern 21p at 839p.The remaining electricity companies which still command their own destiny anticipated what is now regarded as inevitable bid action.US power groups are favourite to strike although continental operations lurk. With John Major's majority down to one and a minority Government looming, the stock market took the view that predators could be rushed into early action. The attitude of any Labour government to a takeover feast is, at best, untested.

Given that and the rather cloudy outlook for oil prices this year, stocks should not generally be chased higher. Even so, careful selection by investors could still reap rewards.. The Tory by election disaster sent shares charging ahead. Such considerations could attract the attention of predators like Occidental or British Gas, keen to establish a presence there.More speculatively, shares in British Borneo Petroleum have leapt this year, fired by optimism surrounding its deal to develop Shell's Morpeth field in the Gulf of Mexico.Much of this is "blue sky" potential, however, as the SeaStar tension leg production platform to be used is untried as yet and the field would be marginal using traditional methods.So after the recent rerating, much of the exploration sector has caught up with events.