PRE-BUDGET nerves continued to weigh on London's equity market yesterday, leaving share prices lower across a broad front. And a weak opening performance by Wall Street triggered additional nervousness in London, as the Dow Jones Industrial Average fell over 50 points shortly after US trading began.

The US market's decline came in the wake of a strong Chicago purchasing managers' report for June, which was interpreted as a good indicator of the National Association of Purchasing Managers' report for the same month. A sharp rise in US new home sales in May contributed to the weak showing of US markets.

Those numbers provided a further nagging worry for the equity market ahead of tomorrow's meeting of the US Federal Reserve's Open Market Committee. "No one expects the Fed to lift US rates but everyone will be relieved when the meeting is over, said one senior market maker.

The FTSE-100 finished the session a shade above the day's low, closing 35.7 off at 4,604.6. The weak end to the day was in sharp contrast to a buoyant opening performance which saw the FTSE-100 up over 22 points, helped by a strong close on Wall Street on Friday and a feeling that the market had discounted much of any bearish budget news.

The FTSE Mid-250 slipped 14.78 to 4,431.3 and the SmallCap 7.9 to 2,225.2. It was not only the worries about tomorrow's budget that cast a shadow over the market. Sterling extended its powerful showing and the market also had to cope with increasing fears that another rise in British interest rates will follow the Monetary Policy Committee meeting on July 10th.

There was more evidence yesterday of a stronger-than-expected British economy. May consumer credit and MO money supply came in higher than forecast, adding to calls for a British rate rise after next week's meeting.

Turnover in equities, as expected so close to the budget, was slightly disappointing, reaching a lower-than-usual 807.8 million shares at the 6 p.m. cut-off point.

A senior market maker at one of the big European securities houses described the London market as "walking on eggshells" the budget stories are pulling the market in both directions, the majority on the downside".

Another trader said London was looking "weary". The Sunday papers had injected an element of uncertainty and none of the big funds want to deal ahead of the budget, he said. The continued strength of sterling the Bank of England's sterling index pushed up again to touch 102.2 at one point yesterday, its highest since April 1991 - was another cause for concern.

The strategy team at BZW pointed out the equity market "badly needs a budget to soften sterling". It said "the current level of sterling will be flushing out more downgrades". BZW noted that while there has been little change in sterling against the dollar, the sterling/deutschmark rate has strengthened a further 5 per cent since the end of March.