Market Report - London

Equities appeared to be on a classic war footing in early trading although the market stepped back from the brink by the close.

As prospects increased that the US might launch a strike on Iraq within the next few days, with the likelihood that the UK would add its weight to the conflict, the market fell sharply.

But the oil majors, which always react positively to any nervousness about conflict in the Middle East were surprisingly strong as well as dominating the volume tables. As the day wore on, balance returned and the fall of 78 points at worst was gradually narrowed. But it was only during the last half hour of trading that Footsie returned to the black.

The FTSE 100 index ended the day 14.2 up at 5,463.2 and just off its high of the day, having been below 5,400 at worst. The recovery was not matched lower down the scale. The FTSE 250 index closed off 18.8 at 4,826.4 and the SmallCap closed only 1.4 up at 2,067.1.

In fact, strategists were unprepared to react too quickly and preferred the "crisis, what crisis?" approach. Many preferred to focus instead on the outlook for earnings. They pointed out that Saddam Hussein had twice tested the United Nations mandate and US troops had twice been on red alert in the past 12 months.

Mr Richard Jeffrey at Charterhouse Tilney said: "Iraq is of specialist interest. People are saying: `We have seen this before and if something does happen we will react to it'."

Turnover by 6 p.m. was only 740.4 million shares, compared with 814 million shares on Thursday. And 100 million yesterday's represented the oil majors as well as 24 million shares in Inchcape, attributed to a tax-related deal.