A REVIVAL of fears that an increase in US interest rates may yet be on the cards after next week's open market committee meeting in Washington put paid to any lingering hopes of British equities ending the trading session in higher ground yesterday.
But even before the US market started to fall, London was making very heavy weather of establishing itself in record territory, with some institutions said to have been concerned with the August public sector borrowing requirement number. At £4.5 billion sterling, this was viewed as disappointing, following July's £1.7 billion sterling repayment.
Interest rate fears in the US hit Treasury bonds, which fell by around three-quarters of a point in early trading and also hit US shares, with the Dow Jones Industrial Average dropping over 40 points at one time. Both markets subsequently rallied, with the long bond a shade off its lows and the Dow down 25 points an hour after London finished trading.
The FT-SE loo index, which began the day in such good heart and with many market observers hopeful of a dash for the 4,000 level, eventually settled a disappointing 4.9 lower at 3,972.3.
The gloom affecting the FT-SE 100 encompassed the whole of the market, with the FT-SE Mid-250 retreating 12.0 to 4,450.0. The FT-SE Small Cap, on the other hand, managed a minor gain, closing 0.5 ahead at 2,188.1.
Dealers insisted, however, that the setback was only temporary. "There really has been no sizeable selling into the market; on the contrary there has been more informed buying, but the market has run out of steam for the time being," was the view of one trader.
He said the big institutions had held off from the market during the early part of the day, preferring to wait for the US industrial output details before deciding which way to go. He also noted that the institutions had become increasingly wary of the market ahead of Friday's series of futures and options expires.
Earlier, there was a widespread expectation that the recent good economic news on both sides of the Atlantic, pointing to only limited inflationary pressures, plus the general euphoria in global stock markets would see the FT-SE 100 push hard against 4,000.
Footsie kicked off on the uptick and quickly established a new intra-day record of 3,986.7, before running into flurries of small profit-taking and general selling pressure which drove the index into negative ground.
Thereafter the index made numerous attempts to rally, getting back into the black on a couple of occasions but eventually succumbing to the downside pressure brought about by Wall Street's poor opening.
Turnover increased yesterday, picking up substantially between 5 p.m. and 6 p.m. and totalling 763.5 million at the 6 p.m. reading.
