THE London market's knee-jerk reaction to the first news in the British budget, including the reduction in corporation tax and confirmation of the abolition of the 20 per cent tax credit on dividends, was mildly positive.
The FTSE-100, standing at 4,733.8 when the Chancellor of the Exchequer started to speak, carried on up as the details unfolded.
It finished Budget Day 23.1 higher at 4,751.4 while the FTSE Mid-250 index closed 18.8 ahead at 4,471.3 and the SmallCap nudged up 1.3 to 2,226.9.
Details of the windfall profits tax came after the close, but were not seen as too troublesome for the various sectors.
The overall market situation deteriorated after the official close, when the FTSE future was signalling a sharp fall this morning.
Gilts were being talked down and dealers were predicting a rise in British interest rates when the Monetary Policy Committee meets next Thursday.
Before the budget, London witnessed another frantic performance, which saw share prices kick off in reasonably good heart, sustained by the good showing by Wall Street overnight, before embarking on another sizzling upward run.
Just as Tuesday's late strength was triggered by a sudden surge of buying activity in the FTSE future, so was yesterday morning's move. Heavy buying of the future brought an instant response from a cash market where market makers remained acutely short of stock.
Any attempted buying of stock saw dealers hoist their quotations in an attempt to head off demand.
But the manoeuvre only fuelled further gains across the board with the FTSE-100 looking set to move through its previous all-time intraday high, 4,796.0 reached on June 13th, and on through the 4,800 level.
However, the emergence of some hefty profit-taking in futures and the underlying cash market saw the FTSE-100 stage an abrupt reversal, with the index driven down more than 12 points at its worst.
Coming hard on the heels of Tuesday's 123.7 gain, yesterday's big swings were seen as proof that the equity market had been gripped by a severe squeeze.
"The marketmakers have had a bad time of it recently. The rumours of the abolition of the tax credit caught them long of stock in front of a 200- point slide and now we've had this spate of volatility," said one observer.
