Wall Street's dazzling performance on Tuesday was the catalyst for another strong showing by the British equity market, driving the FTSE 100 index back above the 5,000 level. But London showed distinct signs of running out of steam, closing well off the day's best levels, as a batch of stronger than expected economic data re-ignited worries that British interest rates may have to be increased again to cool the economy.

Footsie finished the day 36.7 or 0.7 per cent ahead at 5,013.1, extending the rise over the past three sessions to a massive 164.9 points, or 3.4 per cent.

There was evidence that the big rises in the leaders had been accompanied by genuine institutional demand. Turnover showed signs of picking up and reached 865 million shares by the 6 p.m. cut-off point. Activity in non-Footsie stocks contributed only 47 per cent of turnover.

Buying interest was not confined to the front-line stocks. The FTSE Mid-250 outpaced the senior index, climbing 44.0 or 0.9 per cent to 4,686.8, helped by exceptionally powerful performances from a life assurance sector set alight by a bumper dividend pay-out announced by Britannic Assurance.

The latter's shares jumped more than 10 per cent, while those of United Assurance shot up about 9 per cent, before slipping off their best, on the prospect of 20 per cent dividend increases in the immediate future.

Some traders expressed wariness over Wall Street's refusal to make further substantial progress at the outset yesterday, when the Dow Jones Industrial Average came in slightly firmer, only to slip back as the trading day gathered momentum. The Dow showed a double-figure loss as London closed.

But it was the Dow's 174-point leap on Tuesday, in the wake of the smaller-than-expected rise in US inflation and encouragingly strong industrial production, that set the scene for European markets.

Footsie opened 49 points higher, cruising through the 5,000 mark in the process, as market-makers tried to protect themselves from a welter of buying orders. In the event, the buyers still emerged, taking Footsie to a session high of 5,035.3.

Thereafter, it was the economic news that dominated. A rise in retail sales of 0.4 per cent in August, compared with forecasts of a flat figure, a 49,000 fall in unemployment, much greater than the consensus expectation, and a higher-than-expected increase in average earnings upset the gilts market.

Up around 12 ticks in the early part of the session, the 20-year gilt ran back to show a small decline, as the market began to fret about further rises in British rates, possibly as soon as next month.

The currency story remained one of the market's most potent driving forces, with sterling's recent slide and the potential for further weakness in the event of a rise in German interest rates behind further big gains in Britain's leading exporters.