Profit taking halts winning run

THE 11 day winning run of the FTSE 100 index finally came to an end yesterday. But not before a see saw day that saw the market trade in a 55 point range.

A spot of profit taking was probably inevitable after the market's phenomenal run, which has seen Footsie gain nearly 500 points since the start of April.

But the market did not go down without a fight. In the morning it was supported by the British average earnings numbers, which were revised down to an annual 4.5 per cent rise and eased fears of domestic inflationary pressures. Some 20 minutes after the data were released, the leading index hit its high of 4,715.2, just short of the all time intra day record of 4,720.3.

However, the statistics were rather ambiguous, given that the large fall in unemployment suggested an exceedingly robust economy.

The currency markets seemed to have taken the figures as a sign that interest rates would have to rise; sterling gained a cent against the dollar and two pfennigs against the deutschmark, a move that will not have helped equities.

Whether it was economics or Just exhaustion, profit takers seemed to step in, largely through the derivatives market, with traders positioning themselves for Friday's expiry of index options. A rapid retreat before lunch sent Footsie all the way down to its low for the day of 4,660.4, down 30.6.

However, in the afternoon, the US producer prices figures, which showed a 0.6 per cent month on month fall, received a rapturous response on Wall Street.

The Dow Jones Industrial Average moved sharply ahead as investors reasoned that the Federal Reserve's open market committee would not raise interest rates when it next meets on May 20th.

The Dow lost a little steam as trading in New York continued but it was still 52 points ahead when London closed.

It gave the British market a lift and Footsie clawed back most of its losses, ending 4.1 down at 4,686.9. The other main indices dropped back, with the FTSE Mid250 losing 3.7 to 4,259.3 and the SmallCap edging down 1.0 to 2,316.8.

Although the market fell slightly 90 the day, it remained buoyed by investor liquidity. Mr Ian Williams, UK strategist at Panmure Gordon, says that "people who've got cash are desperate to get into the market. Our head of sales sees it as a sellers' strike".

Mr Stuart Fowler, head of UK equities at Kleinwort Benson In vestment Management, is now expecting Footsie to hit 5,050 on a 12 month view.

He cites the high cash weightings being held by institutions, an expected fall in gilt yields because of the Labour party's pro European attitude, the attraction of British assets for overseas investors in the light of sterling's strength and the squeeze in the bank sector caused by the building society flotations.

Volume was 843.4 million shares at the 6 p.m. count, of which 50.9 per cent were in nonFootsie stocks.