Footsie fails to make 4,000 dash

ANY lingering hopes that the FTSE 100 would pick itself up and make a dash for the 4,000 level before the end of the week were disappointed yesterday as convincing evidence emerged of a growing consumer led British recovery.

The news that retail sales had risen by 1 per cent during August surprised the stock market, which was looking for an increase much closer to 0.4 per cent.

That news was made worse by the release of the minutes of the end-July monetary meeting between Mr Eddie George, governor of the Bank of England and Mr Kenneth Clarke, Chancellor of the Exchequer. The minutes revealed that the governor favoured an increase in base rates to 6 per cent from the current 5.75 per cent.

At the end of the day, the FTSE 100 settled 16.6 off at 3,955.7 and the FT-SE Mid-250 slipped 16.4 to 4,433.6.

Coming in the wake of a poor performance by US Treasury bonds, which dropped by around a full point overnight, gilts were always struggling yesterday.

The US news followed reports that two thirds of Fed districts favoured a 50 basis point rise in US interest rates after next Tuesday's meeting.

With the London market bracing itself for potential bad news on rates in both the U and Britain, sentiment in equities was always under pressure.

Matters were made even worse by a growing suspicion around the trading desks that tomorrow's big expiry of derivatives across global markets, but especially in London, which sees the expiry of the FT-SE 100 and 250 futures and index options, might produce a big sell off in the stock market.

There was widespread speculation that tomorrow will see the unwinding of a large number of over-the-counter, or individually tailored, options, written by the big global securities houses.

Never able to get into positive territory, Footsie stumbled at the outset of trading, opening almost five points easier. A half hearted attempt to push on within 30 minutes of the opening quickly ran out of steam.

Thereafter the index remained in no man's land until the opening of Wall Street, which quickly saw the Dow Jones Industrial Average down by more than 20 points. Footsie accordingly took another tumble.

It was not all doom and gloom. The strategy team at Kleinwort Benson hoisted its year end Footsie forecast from 4,000 to 4,200.

Turnover at 6 p.m. reached 622.9 million.