Weakness on Wall Street cuts gains

THE FTSE 100 index looked. briefly, set to record an all-time closing high yesterday, until a weak start on Wall Street caused shares to come off their best.

By mid-morning, the leading index had risen 30.6 to 4,692.4, Just shy of the 4,693.9 mark at which the market closed on May 16th (the intra-day high, recorded on the same day, was 4.723.7).

Last Friday's record close on Wall Street and a firm performance on continental European markets on Monday helped to bolster early sentiment. There was little in the way of domestic economic or corporate news, save for some poorly received figures from EMI, and there was a slightly subdued air to proceedings after the long weekend.

The market's rise was not that broadly-based, however, with 49 Footsie stocks falling and 43 rising on the day. Leading the pack was the financial sector, with optimism about the Halifax flotation feeding through to the banks and a similar feeling about Norwich Union helping insurance stocks.

Mr Robert Btickland, UK equity strategist at HSBC James Capel, said the flotations would be a big feature of the next few weeks. "Halifax and Norwich Union will together make up 2 per cent of the All-Share," he pointed out.

Later on, figures from the US showing that consumer confidence was at its highest level for 28 years, caused shares to fall on Wall Street, as fears revived that interest rates would need to be raised to head off inflationary pressures. An early decline in the Dow Jones Industrial Average, which was 22 points lower by the time London closed, caused Footsie to shed part of its earlier gains.

The leading index closed up 19.8 at 4,681.6, but there were much smaller gains for the other benchmarks. The FTSE 250 index added just 1.3 to reach 4,508.0, while the SmallCap inched up 0.4 to 2,300.2. The post-election rally has tended to be focused on the larger stocks.

The US economic statistics pushed the yield on the 30-year Treasury bond above 7 per cent during London trading yesterday. That might cause some jitters in the US stock market and should prompt some caution about the prospects for UK equities, according to Mr David McBain, UK strategist at NatWest Securities.

The domestic bond market gave equities no support, with the benchmark 10-year gilt three ticks down on the day. "The gilt market has been soggy in the past two weeks," said HSBC's Mr Buckland.

NatWest's Mr McBain said a limiting factor for UK markets could be that the valuation of equities relative to index-linked gilts had risen to levels not seen since 1987.

Volume was subdued, with many traders tempted by the school half-term break to take the holiday-shortened week off. By 6 p.m., only 607.6 million shares had been traded, of which 52 per cent was in non-Footsie stocks.