BRITISH stocks regained their balance yesterday, recovering well after Tuesday's wobble which had been induced by fears of interest rate rises in the US and Britain.
Once again, it was Wall Street which came to London's rescue, with the Dow Jones Industrial Average recovering on Tuesday to erase an earlier 54 point slide and close 33 points higher.
With the US Treasury bond market beginning to show signs of ending its recent decline, British gilts and other European bonds also nudged higher, helping to restore the equity market's wavering confidence.
There remained, however, a widespread feeling that British interest rates will have to be increased sooner rather than later and that next week's meeting between Mr Kenneth Clarke, the Chancellor of the Exchequer, and Mr Eddie George, the governor of the Bank of England, may be followed by a rise of 25 basis points in rates.
Market observers said a rise in US rates after the next meeting of the Federal Reserve's Open Market Committee would depend on forthcoming economic data. Today sees producer price details, while tomorrow brings the December non farm payroll, which economists forecast will show an increase of about 175,000 jobs. Much more will unsettle markets, dealers said.
The US market gave another brief lift to London when the Dow quickly posted a near 30 point rise. Thereafter it fell back to trade almost 20 points lower an hour after London closed.
The FT SE 100 index closed the session 8.7 points better at 4,087.5, well below the day's high which saw the index within 1.6 of regaining the 4,100 level.
Sentiment in the second liners and smaller stocks was unaffected by the fluctuations in the leaders. The FT-SE Mid-250 closed up 10.8 at 4,532.3, only slightly below the session high.
The SmallCap outshone the other leading indices, racing up a further 17 points to 2,226.2, only 18 below its all time high of 2,244, reached last June.
Sterling's continued strength caused further problems for some of the big exporting and currency sensitive issues, most notably the drug stocks, such as Glaxo Wellcome, Zeneca and SmithKline Beecham and other leading stocks, such as RMC.
