NEWS of a 25 basis point reduction in interest rates caught many marketmakers on the wrong foot and produced another power packed performance by the equity market.

The market's response to the rate cut, the second in two months, was immediate, with the FTSE 100 index driven sharply higher during the day and eventually closing only a shade off its best level.

Leading marketmakers said they saw further upside in share prices in the short term, in the wake of the rate cut, with FTSE 3,800 a distinct possibility. Admitting that the market had been caught out earlier in the week, one senior trader said there was still plenty of momentum in the market, despite the constant political worries.

These were highlighted in the press yesterday by reports that the Prime Minister might have to face another challenge to his leadership if, as expected, there was a poor showing by the Conservatives in the May local elections.

Opening over 6 points higher the FTS 100 was always in plus territory but began to motor an hour after the official opening of business, with the rate cut news producing a fresh burst of strength in the index.

Activity in equities accelerated sharply, with turnover at 6 p.m. reaching 945.6 million shares, helped by more aggressive buying of Forte stock, where turnover was 59 million.