A STOCK market looking for direction found it briefly with a bid and then lost its nerve over interest rates.

Dealers began the week happy to keep their books flat to short ahead of a clutch of significant economic data.

The FTSE 100 index was marginally easier at the start of trading as equities responded to a weaker gilts market.

In turn, bonds were reacting to the possibility that tomorrow's meeting between the Chancellor of the Exchequer and the governor of the Bank of England could herald a rate rise.

The theory is that the meeting represents the last chance before May to tinker with monetary policy. After the meeting comes the Budget and, after that, the country shifts into general election territory and any move would be considered political.

However, shortly after the opening, CE Electric of the US launched a £651 million offer for Northern Electric.

A bid in the utilities sector was predicted last week, but the actuality reminded the market that the takeover bandwagon might have further to roll and the prospect of an injection of cash dispelled the Monday mood.

There was a rush of buying in the futures market as dealers, who have hedged against a downturn by holding short positions, raced to cover themselves against a bid inspired rally.

And Footsie built on the gain as sterling showed no sign of giving up its seemingly unstoppable rally. The currency rose nearly a cent against the dollar and half a pfennig against the deutschmark.

A stronger pound hits big overseas earners such as the pharmaceuticals leaders.

Thus sterling's rise might offset the argument for a rate boost, which would tend to increase the attraction of the currency.

Sterling's buoyancy has encouraged increased overseas investment and some traders noted steady European buying yesterday.

Nevertheless, there was not enough to sustain the morning rally.

Footsie failed to respond to a strong opening on Wall Street preferring to dwell not only on tomorrow's meeting, but also on British consumer credit data on Thursday and - from the US payroll and GDP figures.

From showing a gain of 15 points at best, Footsie edged lower to end the day only 2.9 points up at 4025.3.

It was left to the FTSE Mid-250 Index, which includes a heavy dose of utilities companies, to show any real vitality. The 250 rose 11.6 to end the day at 4443.1.

Total turnover reached 641.4 million shares of which 57 per cent was in non Footsie stocks. Customer business on Friday was worth £1.48 billion.