A QUARTER of a percentage point reduction in British interest rates - the third cut this year - took London's stock market completely by surprise and prompted a useful rally in share prices yesterday.
But the rise was capped somewhat by a widespread view that the rate cut had perhaps been driven more by the political considerations of the Chancellor of the Exchequer, Mr Kenneth Clarke, rather than economics.
At the close, the FTSE-100 index was 6.9 higher at 3760.3. The FTSE Mid-250 index, meanwhile, never looked really convincing and settled a net 4.6 firmer at 4480.6.
Sentiment in the market was also heavily influenced by events in the US, where the Dow Jones Industrial Average initially made rapid progress, moving up 26 points, before coming off quickly in subsequent trading and progressing again.
US Treasury bonds, which were up over a point shortly after the start of trading, responded to a bigger than expected increase in benefit claims. The news comes in front of today's crucial non-farm payroll report, regarded as one of the most important US economic indicators.
Dealers have been looking for an increase of 185,000 in US jobs, with a figure much in excess of that seen as likely to induce renewed weakness in US bonds and shares. The latter have been badly hit over the past couple of weeks amid worries that inflationary pressures could be building up.
Footsie began the session on a quietly firm note, held up by the 31 point rise in the Dow overnight and the absence of the much-rumoured mega-rights issue.
But a series of relatively small cash calls, including a £139 million sterling rights issue from Mayflower, the engineering group and a placing of around £108 million worth of Medeva stock, was enough to remind dealers of the potential fund-raising in the wings.
