LONDON stocks remained thoroughly demoralised yesterday, retreating across a broad front as the spectre of rising interest rates here and in the US continued to pressure the market.

Adding to the unease in the City's dealing rooms was talk that two big US securities houses were selling stock at prices below official Seaq quotations.

The FTSE 100 lost its grip on the 4,300 level and the FTSE Mid250 lost its hold on the 4,600. The 100 index posted its fourth straight decline, closing 74.1 lower at 4,258.1 - a fall of 166.2 or 3.7 per cent over the four days.

The FTSE Mid 250, registering its seventh consecutive decline, gave up 87.7 to 4,565.2. The SmallCap's slide gathered momentum as well, finishing 21.6 down at 2,321.5, a decline of 1.8 per cent over the past four sessions.

The market's latest slide came in the wake of another warning from Mr Alan Greenspan, chairman of the US Federal Reserve, that he would take pre emptive action to head off inflationary trends. His words were taken by traders across the globe as a signal that the Fed will move to lift US interest rates after next Tuesday's meeting of its Open Market Committee.

Already weak ahead of the Greenspan speech to Congress's joint economic committee share prices suddenly gave way as the warning flashed across global wire services.

Market makers said the big institutions were given no opportunity to unload stock. "We hit prices instantly, to head off the big sellers," said one. He said London and other European markets had over reacted to Wall Street's initial bout of weakness, which saw the Dow down over 80 points, before embarking on a strong rally.

Dealers are bracing themselves for a hot time in the market this morning when the Footsie futures expire, along with index options.