THE prospects of a rise in US interest rates following the next meeting of the US Federal Reserve's policy making committee, the FOMC, returned to haunt global markets yesterday, including London.

The worries re-emerged after a series of US economic news items, all of which pointed to a strengthening of the US economy and which were perceived as having the potential to increase inflationary pressures.

After fighting hard throughout the morning session to stay within sight of the recent all-time highs, many of Britain's leading stocks finally gave way in the wake of the news from the US, sliding back to close only a shade above the day's lowest levels.

The FTSE-100 index, which burst through to new all-time intra-day and closing highs on Wednesday, finished the day a hefty 33.7 down at 3885.0, with the FTSE Actuaries All-Share index which also reached a new peak on Wednesday, similarly pressured.

With the big investing institutions concentrating their selling efforts on the highly liquid leaders, there was much less downside pressure on the second-liners, represented by the FTSE Mid-250 index, which closed with a modest 5.7 decline at 4432.1.

US stocks and bonds fell heavily in the wake of the economic news, which showed a sharper-than-expected upward revision in US second quarter gross domestic product and strong new home sales.

The news saw the yield on the US 30-year bond move back above the 7 per cent level and drive the Dow Jones Industrial Average down over 40 points shortly after the opening.

Leading marketmakers said London had been surprised by the weight of selling in the market as the news from across the Atlantic was absorbed.