Investors lose nerve late in the session

Investors rode on the European interest rate bandwagon yesterday, only to lose their collective nerve late in the day after Mr Gordon Brown, British Chancellor of the Exchequer, delivered his prebudget statement.

On the face of it, there was little in the statement to disturb the feeling of well-being that has returned to British stocks in recent weeks.

Dealers said the late decline, which saw the FTSE 100 index dribble lower and eventually finish 21.6 off at 5,503.9, represented no more than a small dose of profit-taking, prompted by a sluggish Wall Street.

London's leading stocks initially fell in response to a dismal interim report from Marks & Spencer with Footsie falling more than 45 points.

But as the morning wore on, the market shrugged off the news and seemed briefly set for a fourth consecutive positive session. At its best, over lunchtime, the Footsie was 41.0 higher at 5,566.5.

There were solid performances from the market's second-liners and small-caps. Smaller stocks once again outpaced their senior brethren and the FTSE SmallCap index chalked up its 17th straight gain, jumping 13.0 to 2,048.0.

That extended the rise since the index began its marathon sequence of gains to 213.51 or 11.6 per cent. The FTSE 250, meanwhile, settled 23.9 firmer at 4,911.7.

Both the junior FTSE indices were bolstered by the continuing weakness of sterling. The Bank of England's trade-weighted index dipped below the 99 level yesterday for the first time in many months.

Apart from the Marks & Spencer setback, sentiment in London had been generally positive and driven by strong expectations that domestic interest rates will be cut again on Thursday by at least 25 basis points.