AN element of doubt about the chances of a reduction in interest rates, plus a nervous performance by international bonds, kept the equity market on the hop yesterday.

The market's premier benchmark, the FTSE 100 index, moved in a relatively small are yesterday, and was especially sensitive to worries that the regular monetary meeting between Mr Kenneth Clarke, Chancellor of the Exchequer, and Mr Eddie George, governor of the Bank of England, might not, after all, see a reduction in rates.

There was plenty of good news from Europe, however, where Ciba-Geigy and Sandoz, Switzerland's drug companies, confirmed Wednesday's rumours that a mega-merger was in the offing. The merger, which ignited the Swiss stock market, immediately saw investors focus on the bid potential for Zeneca, one of the leading global drug companies, and saw its shares climbing over 7 per cent.

The FTSE Mid-250 index made further good progress, hitting a record close of 4,280.0, up 3.3, and was given a big lift by the 13 per cent upsurge in South West Water, which spearheaded a general advance by the sector after Wessex Water admitted it was seeking a merger. Any deal involving water companies automatically attracts the attentions of the Monopolies and Mergers Commission.

The day's corporate results were generally positive numbers from GKN, Rolls-Royce and Ladbroke were well up to scratch, but RTZ was a real disappointment.

Turnover at 6 p.m. reached 765 million shares, with non-Footsie stocks accounting for 52 per cent. Retail business on Wednesday was worth £1.7 billion sterling.