Markets more sceptical on UK's entry into EMU

Financial markets have turned slightly more sceptical about the idea of early British entry into a single European currency, which drove furious price movements last Friday.

As a result, sterling stabilised yesterday, as did the Irish pound, which gained around 0.4 of a pfennig against the deutschmark to close at DM2.5738.

Overall, markets finished mixed, in contrast to Friday's session when speculation that British was gravitating towards European Economic and Monetary Union (EMU) pushed shares up sharply in London. In Dublin, share prices advanced slightly, with Bank of Ireland gaining further to close at 845p. CRH also rose strongly, gaining 6p to close at 770p.

In London, meanwhile, bluechip shares showed slim declines while the British government bond market gave back some recent gains.

Sterling seesawed before finishing higher on the day, aided by short covering. " It was a case of rowing back some of the sterling declines of last week," according to Mr John Beggs, chief economist at AIB Treasury. The pound strengthened in tandem with sterling's rise, he said.

The market is digesting the reports about Britain's EMU intentions, according to Mr Beggs, with many investors believing there is some truth in the reports that the Labour government is warming towards monetary union and that there is "no smoke without fire."

The latest wave of EMU speculation started with a Financial Times report on Friday that said the cabinet had become more EMU-friendly and that a statement on possible early entry would be made soon. Analysts said the EMU theme would remain the focal point unless government denials become more categorical.

"It's not going to go away now unless the government comes out and says we're never ever going to join," said Mr Andrew Smith, chief economist at Credit Lyonnais Laing in London.

The FTSE 100 index eased six points to 5220.3 and stayed within a relatively narrow 40point range during the day.

Sterling, which fell on Friday on the view that EMU could mean both lower British interest rates and a weaker conversion rate against the mark, ended a pfennig higher.

Sterling stood at DM2.8416 marks, up from DM2.8318 in late European trading on Friday. Against sterling, the pound was little changed at 90.53p.