The London stock market continued its recent choppy trading pattern yesterday as interest rate concerns resurfaced.

The FTSE 100 index closed 49.1 down at 6,477.8, having been 97.9 off at 6,429.0 at its worst for the day.

The minutes of the meeting of the Bank of England Monetary Policy Committee on June 6th/7th came as something of a surprise to the market. Rather than the expected nine-nil vote in favour of unchanged rates, it emerged that the result was six-three, with the dissenting trio backing a quarter-point increase in rates.

This dented the growing consensus that UK interest rates might have peaked at 6 per cent.

"We expect rates to stay on hold in July and rise by 25 or 50 basis points in August," said Mr Michael Saunders, UK economist at Schroder Salomon Smith Barney Citibank.

"But if upcoming data are very strong, or the end-June national accounts data suggest that capacity use or growth prospects are higher than expected, then the case for a July hike may come together."

Rate concern was not the only factor to affect the market. The heavyweight telecom stocks Vodafone AirTouch and British Telecommunications lost ground, dragging the FTSE 100 down with them.

But there was no sign of a major sell-off, more a general lack of enthusiasm resulting from the distractions of Royal Ascot and gloom over England's loss to Romania in the European football championship. Turnover was just 1.21 billion shares by the 6 p.m. count.

Other markets were not very supportive. In New York, the Dow Jones Industrial Average showed little sign of a rebound from Tuesday's triple-digit loss while European equity markets were about 1 per cent down on the day. Gilts lost about a point, following US Treasury bonds lower.

Global markets appear to be in a cautious mood ahead of the key US interest rate decision next week. The FTSE 250 dipped 13.9 to 6,573.1 and the Techmark 100 index fell 6.5 to 3,452.72. The SmallCap index, however, rose, closing up 2.3 at 3,347.5.

Mr James Montier, global strategist at Old Mutual Securities, believes investors have become overly bearish. "The UK rate cycle is very close to, perhaps even at, its peak. Yet the equity market continues to wallow in the doldrums. Valuations look reasonable.

"Equities have suffered an earnings headwind as analysts have cut their forecasts. However, this now seems to be at an end.

"As growth has held up, despite sterling's strength, so analysts are now raising their forecasts. Now is the time to move overweight in UK equities."