Boom day for smaller indices

An early bout of profit-taking in London's leading stocks was easily absorbed yesterday and replaced by modest overall gains before the market settled marginally lower on the session. There was no evidence of any downside pressure in the equity market's second-liners and smaller stocks. Indices representing both areas accelerated to hit all-time intra-day and closing highs.

The early weakness in many FTSE 100 constituents occurred as the market re-evaluated the sudden burst of merger and bid fever that overwhelmed London and other bourses yesterday.

There was also a concentrated bout of nerves about the possible content of the two speeches made yesterday by Mr Alan Greenspan, chairman of the US Federal Reserve. He spoke at the Cato Institute in Washington and later at the University of Connecticut. "The first of the speeches contained none of the hostile phrases that hit global markets last week," noted one market-maker.

It was last week's speech by Mr Greenspan that sparked the global market retreat last week when the FTSE 100 dropped 87.8, or 1.7 per cent in two sessions after he issued a thinly-veiled warning about the possibility of a rise in US interest rates.

At the finish of a rather muted session, Footsie had recorded a 1.2 decline at 5,298.9, having dropped 28.1 at its worst, not long after London opened.

But the FTSE 250 index raced ahead for the third straight session, ending the day at a record closing and intra-day high of 4,943.8. Similarly, there was plenty of support for the smallcaps with the FTSE SmallCap index pushing up 4.1 to a new intra-day and closing record of 2,391.1.

London's recovery began around lunchtime as dealers noted good gains in US Treasuries. Wall Street kicked off in good heart posting a 30-point lift before easing back as London closed.

Earlier a weaker-than-expected retail sales report for September, issued by the British Retail Consortium, saw the big high street retailers turn tail and lead the market down.

The composite and general insurers showed no inclination to relinquish the hefty gains recorded on the previous day when the sectors raced ahead after the hostile bid for AGF of France and the proposed merger of the insurance interests of BAT with Zurich Group.

Commenting on what it sees as the "continuing Europeanisation" of British economic policy, the UK strategy team at Lehman Brothers said: "We feel that there remains scope for further `market-positive' EMU surprises and this strengthens what we already consider to be a strong case for over-weighting UK equities.

Turnover in equities reached 800 million shares.