London's equity market gave a rather muted response to Wall Street's overnight surge to a new record, preferring instead to reflect on the possibility that another increase in British interest rates might be on the way.

That possibility was raised by the Bank of England's latest quarterly inflation report, which said another rise might be necessary to keep the lid on price rises.

And there was further food for thought for investors with the publication of the minutes of the January meeting of the monetary policy committee which disclosed that no less than three of its members voted for a rise in rates.

Other economic news released yesterday showed average earnings in December up 4.75 per cent, a figure in line with City estimates, and the January jobless total down 12,300, against a consensus figure of 25,000.

"The disappointment for the market is that the bank's suggestion that another rise might be needed came only a day after the inflation rate dropped to match the government's 2.5 per cent target," said one salesman.

Wall Street briefly came to London's rescue, following up Tuesday's three-figure gain in the Dow Jones Industrial Average, which drove that index up to a new record, with a further rise at the outset of trading yesterday.

The Dow moved through the 8,300 mark, posting a gain of 20 points not long after Wall Street opened. But sentiment on Wall Street then began to wane, with knock-on effects in London.

In a similar performance to Tuesday, the leaders made rather hard work of their advance, but this time the weight of profit-taking and selling pressure saw the FTSE 100 index drop back to finish 5.4 easier at 5,607.9.

It was a different story for the FTSE Mid-250 and FTSE SmallCap indices, both of which continued to hit new intra-day and closing peaks in response to a steady stream of buyers.

The FTSE Mid-250, which at one point looked like breaking through the 5,000 barrier for the first time, closed 4.5 firmer at a record 4,991.5, after an intra-day peak of 4,998.9. The FTSE SmallCap ended 4.0 up at a closing record of 2,423.9, after reaching an intra-day record of 2,426.2.

The oil sector acted as a substantial drag on Footsie, weighed down by the recent weakness in crude prices and to a lesser extent by the slightly disappointing fourth-quarter numbers delivered by BP on Tuesday. Shell reports today.