WORRIES about the latest decline on Wall Street continued to British gnaw away at the stock market's confidence for much of yesterday.
Share prices were left stranded until a late flurry of support took the FT-SE 100 index into positive territory.
Dealers attributed the late rally in the market to a fresh burst of takeover speculation. Others said the money coming into the leaders came from the same source that provoked last Friday's surge.
"There is the hint of a bid," said one market-maker, who mentioned the insurance sector as one area ripe for further rationalisation and also noted the late rise in SmithKline Beecham.
Most of the day's corporate results pleased the market, with strong gains in selected stocks.
But for the most part, activity in the market was subdued and affected by the closure of US markets for the Thanksgiving holiday.
The late rally carried sufficient weight to erase earlier losses and push the FT-SE 100 index to a closing 4,050.2. It was up 1.0 on the day, reducing the decline since the budget to 18 points in the two full sessions since the Chancellor's budget proposals.
The FT-SE Mid-250 index, meanwhile, was never under severe pressure, shrugging off small flurries of profit-taking, and finishing 4.7 higher at 4,416.7.
The Mid-250 index owed its good performance mainly to hefty gains in a handful of stocks, such as Stagecoach, the transport group, T&N, the engineering group and Sage, the computer software company. The SmallCap index was 4.1 down at 2,159.2.
Dealers said they expected London to move sideways until a clear pattern emerges on Wall Street. The US market opens for a half-day session today but the general expectation is that little genuine investment activity will take place with many traders preferring to take a long weekend.
Some market-makers said they expected a big two-way pull to develop in London in the absence of any firm trend emerging from the US.
"There are plenty of institutions that are still substantially underweight in British stocks and if the market continues to make progress then there will come a time when they simply have to buy," said one trader.
Another felt confident that the market had embarked on a pre-Christmas run that could well drive the FT-SE 100 to an all-time high, piercing the 4,100 barrier in the process.
Bid hints continued to drive Imperial Tobacco sharply higher. On the results front, Royal Bank delivered better than expected earnings despite a poor showing from Direct Line, its former star division.
