THE lure of another round of European interest rate cuts coupled with strong performances from gilts and German bunds provided a firm foundation for British equities yesterday.
But there remained doubts about the London market's ability to make any substantial progress in the short term.
Some traders said the British market had shown a marked reluctance to build on strong gains recorded in mid morning.
At the close of a session marked by a sharp reduction in turnover compared with recent levels of activity, the FTSE 100 index settled 5.4 ahead at 3,662.7, well below the day's high.
And there was much less enthusiasm for the market's second line stocks, where the Mid 250 index was always struggling and eventually ended a net 3.0 off at 4,021.6.
Reduced business in the market was attributed to the lack of a lead from US bond markets which were closed for the Martin Luther King holiday in the US.
Dealers also pointed out that Mondays are traditionally quiet, with business in equities tending to build up gradually during the week.
This week sees two potential rate cutting meetings in Europe. Mr Kenneth Clarke, Chancellor of the Exchequer is scheduled to meet Mr Eddie George, governor of the Bank of England, tomorrow to discuss monetary policy. And, on Thursday, the Bundesbank council meets to debate German interest rates.
European markets got off to a flying start yesterday, as markets picked up the scent of rate cuts. The Frankfurt bourse hit an all time high and Paris made rapid progress, with London tending to lag behind its European brethren but always looking in good shape.
After a quiet but firm opening, up around two points, Footsie began to pick up speed, helped on its way by some encouraging economic numbers on producer prices. These were interpreted as reducing inflationary pressure in the British economy.
At its best, in mid morning the FTSE 100 touched the day's high of 3,668.8. Thereafter it fluctuated in a narrow range, before settling comfortably above the 3,660 mark.
A senior market maker at one of the big securities houses said he thought there was the potential for the Footsie to retrace another 40 points in short order "There is a worry that equities have shown a marked reluctance to follow gilts in recent days", he said.
Wall Street gave an initial lift to London, but then came under persistent downside pressure, dipping into the red shortly after the opening and losing ground thereafter. The Dow Jones Industrial Average was over 20 points lower two hours after London closed.
Turnover at 6 p.m. reached 584.3 million shares, well below last week's levels. Non FTSE 100 stocks accounted for 57 per cent of the total. Asda, the supermarkets group, topped the list of active stocks.
J Sainsbury outpaced the rest of the Footsie constituents, helped by a broker recommendation, but Tomkins suffered from switching caused by what some dealers labelled disappointing interim figures.
