The impact of an early burst of enthusiastic buying of British stocks following the much-heralded reduction in domestic interest rates was wiped out by a poor early showing by Wall Street.
Before the kick off in the US, the London stock market had responded positively to the 50-basis-point cut in interest rates, the third downward shift in rates since October.
Dealers acknowledged that the cut was good news but added the market had long expected a cut of that magnitude and many had been expecting a bigger reduction; a call for a 100 basis points off rates was given an enthusiastic welcome by the stock market earlier in the week.
Wall Street fell more than 100 points early yesterday as US investors fretted about the prospect of more problems in South America, especially Brazil and amid worries that the economic woes in Asia may reappear.
A senior market-maker in London said the 50-basis-point reduction "has been in the price for some time". He added that London was preparing itself for a period of low volumes in the run-up to EMU which could, he said, lead to extreme volatility in share prices.
Others insisted that London would have to face the prospect of a continuing stream of profit warnings. "There is a view that the new year and the onset of the euro will bring a sharp dose of reality to the British market which could well be made much worse if Wall Street hits choppy waters," was the feeling of one broker.
The FTSE 100 index swung in a near 100-point arc, sliding more than 50 points early in the day before rallying strongly in the wake of the rate cut and posting a 43-point gain, then slipping away towards the close. The last five minutes of trading saw the FTSE 100 flash both blue and red on the trading screens, before finally dipping into negative ground and eventually closing 8.8 off at 5,660.3.
The second and third-line stocks were briefly under pressure shortly after trading began, but rallied strongly as buyers moved into the market and thereafter never looked like falling back.
The FTSE 250 ended 2.1 ahead at 4,780.0, having hit a session high of 4,785.2, while the FTSE SmallCap closed 3.2 higher at 2,020.7.
There was some disappointment that the previous day's takeover/merger stories did not materialise, but news that Wassall had increased its stake in BICC helped the latter's shares advance amid hopes that the former may yet provoke a bidder into the open.
Company news among the front-line stocks was mostly supportive of the market, especially good results from Compass, the catering group and Racal Electronics, both of which featured in the FTSE 100 and 250 best performer tables.
Worries about the impact of sterling and the global economic downturn showed up vividly in Royal Doulton, the china manufacturer, whose shares plummeted after a big restructuring involving 1,200 job losses.
Merger speculation returned to the utilities sector as the rumour mill had Energis set for a takeover. The group jumped 60p to £12.92 1/2 on the reports - a gain of more than 5 per cent, while parent company National Grid wired up 14 1/2p to 505 1/2p.
The merger plans of drugs groups Zeneca and Astra, which saw such heavy gains in the sector yesterday, ended in pockets of profit-taking but some buying as well. Zeneca fell 121p to £25.90, SmithKline Beecham gained 7p to 783p while, after earlier falls, Glaxo Wellcome put on 38p to £19.94.
Ladbroke shares gained on reports that two venture capital groups fighting over its Coral betting shops had raised the stakes much higher than analysts had expected. Stanley Leisure dropped out of the bidding race last night and Ladbroke jumped 10p to 227p.
Media group Daily Mail and General Trust improved 12 1/2p to £24 after reporting record final profits from improved sales of the Mail newspapers and the London Evening Standard. Turnover was a healthy 1.03 billion shares by the 6 p.m. count.
