Lingering hopes that the London equity market's benchmark index, the FTSE 100, might just have enough momentum to finish the year above the 6,000 mark were dashed yesterday.

The final trading session of the year, which ended at 12.30 p.m., saw leading stocks come under light fire in exceptionally thin conditions and fall away sharply only to stage a startling rally during the last 15 minutes.

That rally saw the index recover dramatically from a 132.5 decline to finish a net 58.9 lower at 5,882.6, as a burst of basket trades, linked to the FTSE future, and what dealers described as end-year "window dressing", produced a sea of blue across screens.

The market's exceptional volatility was attributed by dealers to the thinness of bids and offers on the Sets trading system.

Underlying sentiment in the market remained good, illustrated by the solid performances of the market's junior indices. The FTSE 250 never looked in danger of falling into negative territory, eventually finishing 11.2 higher at 4,854.7, having touched a session high of 4,856.2. The FTSE SmallCap, meanwhile, closed at the day's best, up 9.2 at 2,070.9.

Over the year, the FTSE 100 rose 747.1 or 14.5 per cent, eclipsing all the other FTSE indices. The FTSE All-Share was up 262.92 or 10.9 per cent and the FTSE 250 678.1 or 1.4 per cent. The FTSE SmallCap was left trailing, finishing 242.35 or 10.4 per cent lower.

Dealers are now preparing for action on Monday which brings the arrival of European monetary union and the possibility of a flood of new money coming into the British market from continental investors, wary of the euro.

There is also the expectation that the new year will herald another burst of take-over/merger activity, one of the features of 1998.