LONDON'S equity market built on last Friday's bond led recovery, responding to the start of the third quarter and hopes of an influx of institutional cash.
The market was less inclined to worry about the possibility of a shift in US interest rate policy after the Federal Reserve Open Market Committee meeting which gets under way today.
The market's more relaxed attitude toward the FOMC meeting saw Wall Street race higher at the opening yesterday, with the Dow Jones Industrial Average up over 30 points in early trading.
At the end of a session featuring a low level of institutional activity, the FTSE 100 index closed at the day's best level, up 14.6 at 3725.6. That soothed the nerves of some traders who were worrying about a move below 3650 as recently as last week.
The FTSE Mid 250 index gave an even more emphatic response to the improved feeling around the market, climbing 17.2 to 4370.4.
London's performance was impressive given that Treasury bonds made a poor start to the week after the US purchasing management survey for June proved stronger than expected.
Gilts were never a prop for the equity market, opening easier and struggling all day, eventually closing around four ticks lower in the face of some robust money supply figures and the monthly British purchasing managers report.
The head of trading at one European securities house said he was impressed with the market's performance, given international worries about the health of Mr Boris Yeltsin, the Russian President.
He said the "feelgood" factor was beginning to emerge in Britain and could well introduce a much better feeling in the stock market, which might also be given a big boost by the emergence of any surprise takeover bids.
Others said London had sorted itself out in the past couple of weeks but warned that the third quarter might see the emergence of a series of big rights issues.
Turnover in equities at the 6 p.m. reading came out at a relatively lowly 606.9 million shares, with non FTSE loo stocks accounting for 61 per cent of the total. Retail business on Friday was worth £1.79 billion.
The latest survey of British house prices, from the Nationwide Building Society, indicated a 0.5 per cent rise during June and gave a boost to the house building sector and related building materials stocks. That news, plus last week's move by the Bradford & Bingley Building Society to remove its mortgage incentives, gave a big lift to other mortgage lenders as analysts factored in increased margins.
Abbey National was one of the main beneficiaries of the mortgage story, as was Lloyds TSB and HSBC.
Revived takeover talk was the driving force behind Zeneca, while BP's recent under performance against Shell triggered plenty of switching activity in the oil majors.
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