Footsie ends budget fear slump

THE slide in British share prices, which extended to six straight sessions, was halted yesterday. Ironically. this was in the wake of the second biggest ever points fall in the Dow Jones Industrial Average, which fell 192 points on Monday evening.

The Dow's plunge, which came after a reported warning by Mr Ryutaru Hashimoto, the Japanese Prime Minister, that the Japanese might consider selling US Treasury bonds, did cause an instant mark down of British stocks by market-makers. But the absence of any follow-on selling pressure saw London gather itself quickly and recoup all of its initial losses, before making strong progress as the day wore on.

The FTSE 100, which had fallen over 200 points since a report that the Labour government intended to abolish the 20 per cent tax credit on dividend payments as one of the central planks of its July 2nd budget measures, finished the day 20.5 ahead at 4,596.3. It only just failed to drive back through 4,600, topping out at 4,598.6.

Although closing well above their lowest levels, the FTSE Mid-250 and FTSE SmallCap indices did not enjoy the same level of recovery as the leaders.

The FTSE Mid-250 was left with a 7.5 loss at 4,447.3, having fallen almost 30 points to 4,425.3, while the FTSE SmallCap settled 12.0 down at 2,234.4, after touching a session low of 2,233.4. The FTSE All-Share index rose 5,81 to 2,183.60.

London's recovery was helped along by Wall Street's substantial rally when the US market opened yesterday after assurances from Mr Hiroshi Mitsuzuka, Japan's Finance Minister, that the Japanese government had no intention of selling its US Treasury bond holdings.

The US bond market, which, although under pressure, never looked like matching the weakness of Wall Street overnight, picked up after the finance minister's comments. News of a surprisingly strong consumer confidence survey caused only a momentary upset for that market.

The Dow powered ahead to post a 70-point gain shortly after the opening and remained well supported later in the session, although it dipped off as London closed for the day.

One of the main driving forces behind London was a continuation of the intense takeover speculation that has gripped the banking and insurance sectors of the market recently and especially since National Westminster Bank's move to cap its expansion plans for its NatWest Markets investment banking division.

Market-makers said London's resilience in the face of The overnight US sell-off was a clear demonstration that the near 5 per cent fall in the FTSE 100 marked the extent of the market's downside limits until next Wednesday's budget was taken on board.