Blue-chips struggle to advance

Leading British stocks continued to struggle to break into new territory yesterday, with many fund managers reluctant to chase the FTSE 100 constituents any higher after the recent buying spree.

Late in the session, Footsie did stage a strong advance, fuelled by a powerful surge by Wall Street, where the Dow Jones Industrial Average posted an early rally, and by a burst of fresh takeover speculation involving British conglomerate Cookson. But even that flurry of buying quickly dwindled away.

The relatively sluggish showing by the leaders was surprising after some good news on inflation. Underlying inflation fell to 2.5 per cent last month, meeting the government's target and coming in well below the consensus forecast of 2.7 per cent; the headline figure came in at 3.3 per cent, also below expectations.

The other main piece of economic news was an upbeat survey of the high street from the British Retail Consortium. This showed sales up 6.1 per cent over the past year.

Sentiment was slightly dented by some rather disappointing corporate results from Footsie constituents. Of the four leaders reporting yesterday, the worst reception was given to BOC, which delivered lower than forecast earnings in the face of sterling's strength and Asian turbulence. BOC shares fell sharply, with institutions said to be switching into ICI.

BP's report, which mentioned margin pressures, also caused some discomfort, although the dividend provided a useful cushion for the share price.

The second-liners and small caps extended their recent run of good gains with both the FTSE Mid-250 and FTSE SmallCap marching ahead to new intra-day and closing records.

"They've been left standing by the front-line stocks and are playing catch-up; they offer good value compared with the leaders," said one salesman.

The FTSE Mid-250 index climbed to an intra-day peak of 4,987.4, before easing back to finish 8.7 firmer at a closing record of 4,987.0.

The FTSE SmallCap rose 3.2 to a new closing high of 2,419.9, having hit an intra-day peak of 2,420.2 in mid-morning.

The FTSE 100, meanwhile, swung in a 43.5 point arc. It slipped just over 14 points, dropping well below 5,600, only minutes after trading commenced, but then embarked on a mid-morning upswing to a session high of 5,627.8.

That rally ran out of steam, however, and the index subsided once again before its late surge took it up 12.4 to 5,613.3 by the close. Traders said it was encouraging that the index ended above 5,600.

In their latest analysis of the FTSE 100, Merrill Lynch's technical analysts said that, in the near term, the index looked overbought, but they expected more new highs; in the medium term, Merrill said a "cyclical downswing is due".