A minor bout of profit-taking in London's equity market came as no surprise after the massive surge that followed Friday's report that the British government was warming to European Economic and Monetary Union.
And there were plenty of other excuses for brokers to advise clients to lock in the big profits accrued over the past two weeks, during which the FTSE 100 has risen a massive 367.8 points, or 7.5 per cent.
Dealers pointed to the EMU story, which attracted scepticism in the weekend press, today's meeting of the US Federal Reserve's open market committee and the Labour Party conference, all of which could cause substantial market moves.
After a much quieter session, Footsie was left with a modest 6.0 decline at 5,220.3, having traded in a 41.7-point range and equalled its intra-day record of 5,244.3 in the process.
Unlike the more volatile Footsie, the FTSE Mid-250 and SmallCap indices were always in positive territory. The former recorded intra-day and closing highs, hitting a peak of 4,816.9 before finishing 7.0 firmer at 4,816.1.
The SmallCap was finally up 3.6 at 2,324.7, still some distance from its intra-day and closing records, 2,375.2 and 2,374.2 respectively, reached on March 12th.
The FTSE All-Share Index closed 1.26 down at 2,444.60, but not before reaching an intra-day record of 2,452.84.
"It was a bit of a choppy day but the initial profit-taking was well-received and the market did nothing more than consolidate after that," said one senior market maker. BZW's strategy team said it backed the market's positive reaction to the European integration theme. It raised its 1998 target for Footsie to 6,000 and pointed out that the government's reported warming towards EMU "essentially builds on policy measures already taken - a tight budget and the decision to make the Bank of England independent".
The investment bank added that the 80 basis points plunge in gilt yields over the past month, the anticipation that short rates will peak next year and the prospect of the UK moving closer towards monetary integration with Europe all support the view that British equities are cheap.
Mr Ian Scott, Lehman Brothers' British strategist, hoisted his end 1997 Footsie target to 5,500 and that for mid-year 1998 to 5,800. He said the market's initial 3 per cent rise "has further to go, while London has scope to continue its recent out-performance versus other European equity markets, at least on a hedged basis".
The head of British equities at one big London-based investment management group said he felt London would extend its strong performance, at least until the shift to order-driven trading on October 20th.
