SENTIMENT in British stocks, which has been severely dented in recent sessions, improved sharply yesterday, leaders clawing their way back into positive territory after an early bout of weakness and finishing the session in good heart.

However, second line and smaller shares were out of favour, drifting lower in fairly light trading.

The recovery in blue chip stocks came after the Confederation of British Industry's May survey of distributive trades, and news of higher than expected weekly US jobless claims.

The latter was interpreted as a good indicator of the US non farm payroll report for May, expected today. The report is one of the crucial economic figures scrutinised by the Federal Reserve's Open Market Committee during its monetary policy deliberations.

The CBI survey indicated a slowing in high street sales during the month, news that was well received by a stock market worried that the newly installed monetary policy committee's first meeting would produce an interest rate rise.

Dealers insisted, however, that there remained a possibility that rates would be lifted, although some said the committee might prefer to wait for details of the new chancellor's first budget, scheduled for July 2nd, before recommending an increase.

Along with the interest rate worries, growing nervousness about the content of the first Labour budget had driven leading stocks on London's equity market sharply lower over the previous six sessions.

There was also a story that some of London's weakness had been caused by an overseas seller of over £200 million sterling worth of British stocks. The FTSE-100 index built quickly on its recovery, eventually closing the session 19.1 higher at 4,576.2.