An early rally on Wall Street following weaker-than-expected economic data helped bail London out of earlier losses.

The National Association of Purchasing Management said its July index of US manufacturing sector activity came in at 53.4, lower than predictions of around 56.1.

With fears on interest rates continuing to be at the forefront of dealers' minds, the data was seen as con firming a belief in some quarters that the US economy had slowed in the last quarter. Thus, dealers speculated, the rationale for an increase in US interest rates was fading.

The veracity of that argument remains to be seen but the ensuing buying in both US equities and Treasuries not only boosted those markets but soon spread to a London market that had spent much of the session reflecting on the malaise on Wall Street on Friday.

In early trading, sentiment was also depressed by the publication of a stronger-than-expected UK July purchasing managers' index for manufacturing which rose to 52.7 in the month from 51 in June. Although the data was seen by some as pointing to the continued recovery in the UK economy, the figures also raised the prospect of a move upwards in interest rates later in the year.

However, no change is expected on Thursday when the monetary policy committee of the Bank of England announces its decision.

It was left to the corporate sector to bring a glimmer of hope to an otherwise soggy market that had also seen an early fall in gilts. The main impetus came in the form of better-than-anticipated figures from HSBC, the international banking group. Analysts moved to upgrade full-year profit expectations although, given the group's heavy exposure to the tentative economic recovery in Asia, concerns about the sustainability of the bank's earnings growth remain.