Wall Street's return after the Independence Day holiday last Friday was the key factor behind the performance of London's equity market yesterday which saw share prices rally to finish marginally firmer after a rocky start to the session.
Earlier, London was hit by a flurry of small-scale selling pressure, triggered by ever-present concerns that this week's meeting of the Bank of England's monetary policy committee, which commences tomorrow, might see domestic interest rates lifted by 25 basis points.
Although those worries were briefly allayed by the latest UK economic news, on industrial production and manufacturing output, there was no ignoring the widespread concerns about interest rates.
"There was talk of a buy programme late in the day, but it really did feel like Wall Street had brought the market round. Earlier there was nothing doing -the market is still waiting for the monetary policy committee news," said one trader.
At the end of what many described as a dismal trading session, the FTSE 100 finished 1.9 higher at 5,990.3, its fourth consecutive gain and its fifth winning performance out of the past six trading sessions.
But there was no real conviction behind a late rally in the leaders. Earlier the FTSE 100 had fallen just over 57 points before it began to stabilise.
The Dow Jones Industrial Average rose more than 30 points shortly after trading commenced in New York, helping to revitalise previously dull European markets, which had been unsettled by fresh weakness across Asian stock markets.
Tokyo dipped 1 per cent and Hong Kong almost 2 per cent after continuing uncertainty about potential tax cuts in Japan.
News of a severe dip in UK industrial production, down 1.2 per cent in May compared with a consensus estimate of 0.2 per cent, and a 0.4 per cent decline in manufacturing output, against expectations of 0.2 per cent, triggered alarms that another rate rise would impose severe strains on UK manufacturers.
There was less pressure on the second-liners and smallcap issues. The FTSE 250 closed 2.8 ahead at 5,588.5, given a lift by some exceptionally strong performances from the second-tier telecom/ cable companies, which occupied the top four places in the index performance table after actual and rumoured tie-ups.
The SmallCap closed 5.9 off at 2,598.6, with more evidence of profit warnings affecting sentiment.
In its latest strategy note, Credit Suisse First Boston took comfort from the fact that the market had resisted the downside story. "We believe the valuation structure, both across the market and relative to bonds, point to a market already braced for a hard landing."
However, there were more warnings about the impact of the Asian crisis, this time from ABNAmro, where the strategy team said: "Growth prospects in a third of the world economy - Asia - are deteriorating sharply. This is now producing a marked softening in lead indices for exports across Europe."
Turnover in equities at 6 p.m. was a lowly 688.3 million.
