Equities seek direction as traders hunt inspiration after recent rally

LONDON stocks traded within an aura of almost eerie calm yesterday. Traders looked at the market's new peak, achieved on Friday, and waited for inspiration.

With Wall Street closed for Presidents' Day and no significant British economic data published yesterday there was a lot of watching.

Caution ahead of results and data later in the week combined with nervousness ahead of Labour's censure vote on the agriculture minister over the BSE crisis saw the FT-SE 100 index drop 3.2 to 4,337.8. Once the impact of companies going ex-dividend was stripped out, Footsie was virtually unchanged.

The FT-SE 250 ended the day, up 0.5 at 4,606.5 and the SmallCap 2.1 higher at 2,341.0.

London stood apart from the wider European trend. Twelve continental bourses including Germany, France, Switzerland and Norway hit new peaks as the dollar rose against the deutschmark. The rally will remove some pressure from hard pressed European exporters.

In the UK, sterling was also slightly weaker against the dollar. But the British exchange rate index moved higher as sterling gained against the deutschmark.

Consequently, potential equity investors stayed at home, fretting about valuations and concentrating on individual issues.

Footsie was marked down by almost 22 points in early morningtrading, partly to reflect Friday's slight downturn on Wall Street.

Also, the equity futures contract traded at a discount to its estimated fair value all day.

The mark down failed to flush out serious investment, however, and the slow recovery throughout the day was matched by turnover of only 726.1 million shares at 6 p.m. That compared with 925.1 million on Friday when genuine customer business, excluding Crest deals, was valued at £647.1 million, the lowest for nearly two weeks.

The biggest contribution to the day's business came from the demerger of British Gas into BG and Centrica. Between them, the two new Footsie constituents accounted for more than 10 per cent of the day's volume. Williams has dropped out of the index.

Without that, activity was dull indeed. Footsie has hit many strategists end of year targets already and, while a Labour victory is already factored into forecasts, further interest rate rises are seen as inevitable.

Furthermore, if retail sales figures tomorrow are stronger than expected, higher interest rates could be right back on the agenda.

On the other hand, some traders are waiting to see if Barclays announces a share buy back today. If it does, that could inject some £400 million into the market.