Market retreats after hitting record

AN early surge to new record levels by the FTSE 100 index, fuelled mainly hy the overnight jump by shares on Wall Street, was erased later in the day by news of much stronger than expected growth in the US economy during the first quarter.

But a subsequent rally, triggered by reinvigorated US bond and stock markets, saw London finish the session marginally higher.

Earlier, London had already shown signs of running out of steam as an initial markup of stocks failed to attract any follow through buying, especially in the buoyant financial areas.

Today's British general election, expected to see a Labour government returned for the first time in 18 years, elicited barely a mention from traders, who said the market was only concerned at the extent of the Labour majority. A number of City dealing rooms will remain open all night to accommodate investors dealing as the election results come in.

Wall Street had initially dropped sharply on news that first quarter gross domestic product had risen by an annualised 5.6 per cent, against a consensus forecast of 4 per cent. That news, along with the Chicago Purchasing Managers Index, saw US Treasury bonds drop half a point, quickly followed by an early 25 point slide in the Dow Jones Industrial Average.

Footsie finished a topsy turvy trading session 2.8 higher at 4,436.0. But that closing level masked substantial moves earlier in the day. The leading index kicked off in excellent form, hitting a new all time intra day record of 4,466.5 just minutes after the opening, on the back of the dramatic 179 point overnight leap in the Dow. It began to falter not long after the opening, as the expected buyers of British stocks failed to materialise. By lunchtime, the index had fallen into the red, with the selling pressure building up considerably after the GDP news was announced. At its worst, Footsie was down 18.9 at 4,414.3.

The Dow's overnight surge reflected some weak economic news on durable goods and employment costs, which was seen as reducing the chances of a rate rise after the next Federal Reserve open market committee meeting on May 20th.

But the conflicting evidence provided yesterday caused considerable confusion across global markets. The Dow was sharply higher as London closed and trading 60 points ahead at 6 p.m. London time.

Further evidence of the pace of the US economy comes today with the NAPM for April, and tomorrow with the US nonfarm payroll report.

The other British indices were also bruised by the erratic movements in the Dow and Footsie. The FTSE Mid250 finished a net 8.3 off at 4,498.7; at its best yesterday it was almost 16 points ahead and comfortably clear of the 4,500 level. The SmallCap settled 2.4 up 2,295.5.

Turnover in equities fell just short of the one billion shares figure, reaching 994 million at the 6 p.m. cut off point.