THE recent burst of enthusiasm for British stocks ran out of steam yesterday, with the big institutions moving back to the sidelines, seemingly content to wait for the May 1st general election.

Some dealers expressed their, surprise at the market's initial reluctance to make further progress, given that Wall Street had continued its good run overnight, moving up 29 points on the Dow Jones Industrial Average, amid a flurry of excitement in the investment banking sector. US bonds also nudged higher, sustained by the dollar's good performance.

But the US market's sluggish opening yesterday, when it fell over 30 points shortly after trading commenced, before edging oft the lowest levels, seemed to confirm London's more cautious view of global market trends.

Worries about the pound's strength, particularly against the deutschmark, eased slightly after a general retreat which saw the Bank of England's sterling index slip 0.3 to 99.1.

The shift in sentiment in the currency took the edge off gilts for much of the morning, removing one of the props from under the equity market. The sector rallied over the lunchtime period but eased again to close little changed on balance.

The FTSE 100 index closed the session a net 2.4 easier at 4,269.3, not far off the day's low, 4,259.6. There was some comfort for investors in the second line stocks, where the FTSE Mid-250, which had lagged the senior index during its two-day rise, spent a comfortable session, always in positive territory and finally 0.3 firmer at 4,518.7. The SmallCap index closed 2.1 up at 2,286.4.

Commenting on the day's events, the head dealer at one of the big European securities houses said London has suffered from a general lack of enthusiasm, triggered mainly by the threat of more rises in US and British interest rates in the short and medium term. "No one in the market can claim to have been overworked today," he said. The threat of a further increase in US rates - possibly after the next FOMC meeting, and in British rates after the first post-election meeting between the new Chancellor of the Exchequer and the governor of the Bank of England, would overshadow sentiment for some time, he said.

Turnover remained low, despite hints that a couple of programme trades had impacted on the market shortly before the close. At the 6 p.m. count, turnover was 785 million shares, split evenly between FTSE 100 and other stocks.