Hopes about US interest rates set festive mood

Optimism about US interest rates ensured that the UK equity market began the pre-Christmas trading week in a festive mood.

The US Federal Reserve's open market committee meets today. Most observers expect the FOMC to switch from a tightening to a neutral bias in monetary policy. Some are hoping for a switch to an "easy" bias, with a few brave souls forecasting an immediate cut in rates of a quarter of a percentage point.

The markets are in need of some interest rate cheer after taking a battering in the form of profit warnings over the past few weeks.

Indications from the US futures markets during the London morning were that the Dow Jones Industrial Average and the Nasdaq Composite would both open higher. That ensured a good start to the day for the FTSE 100 index, which hit a high of 6,260.4, up 84.6, in the first hour of trading.

The Dow did indeed make a good start to the day, gaining 200 points, but the Nasdaq rally rather fizzled out and the tech-heavy index was in negative territory by the London close. That reduced Footsie's gain for the day to 70.7 points, with the blue chip benchmark closing at 6,246.5.

The FTSE 250 gained 38.9 at 6,470.3 and the Techmark 100 index advanced 32.32 to 2,660.64. But the FTSE SmallCap dropped 0.5 to 3,203.0.

Plenty of corporate news kept traders busy. The merger between drug giants Glaxo Wellcome and SmithKline Beecham was finally approved by the US Federal Trade Commission. The two companies first announced their plans in January.

The approval of the deal means there will be a vacancy in the FTSE 100. A company from the reserve list will be promoted, based on the closing share prices on Thursday, December 21. The potential candidates are: Enterprise Oil, Hanson, Matalan, Morrison (William), Scottish & Newcastle and Smith & Nephew.

In the meantime, Shell announced a new chairman and a plan to increase cash returns to shareholders by 50 per cent a year.

Turnover was fairly modest and is expected to drift lower over the next few days as the market winds down for the holiday period. Just over 1.32bn shares were traded by the 6pm count.