AN initial burst of enthusiasm which drove the FTSE 100 index to a record intraday high, quickly ran out of steam yesterday leaving leading stocks lower on the session.
Outside the top 100 stocks however, the market was in good shape. Its underlying strength was demonstrated by the good performance of the FTSE 250, which finished the day 9.6 higher at 4,506.9.
The smaller stocks also looked well bid and the FTSE SmallCap index ended 1.7 firmer at 2,281.1.
The market's early strength came in the wake of the sharp rise in the shares of Energy Group, emerged earlier this year from Hanson. Energy was responding to news of the bid approach from Pacificorp of the US, released after Tuesday's close. Dealers said the market had also been driven higher by widespread talk of another bid.
The financial sector, heavily bought in recent months as the demutualisation bandwagon began to roll, was seen as the most likely to provide a takeover.
Footsie was driven up to a record 4,759.3 only minutes after the official opening, but subsequently fell away to a session low of 4,720.9 in mid afternoon, before steadying and closing 14.8 lower at 4,724.8.
Turnover at 6 p.m. was 872 million shares, respectable by recent standards, but dealers insisted that overall commission business remained in the doldrums.
The headtrader at one big European securities house said London had obviously got wind of the Energy Group bid the previous day: "That was the driving force; now, the market feels slightly twitchy. We had hoped the bid would have come in the banks, which would have set light to the market as a whole."
Other market makers also took the view that, although the Energy Group bid would inject more cash into the market, it was by no means certain the takeover would be waved through by the new Labour government.
Wall Street's overnight surge to a record close on the Dow Jones Industrial Average had helped London at the start yesterday. However, Wall Street lacked impetus yesterday afternoon, with an early double figure gain in the Dow almost eradicated after London closed.
The day's economic news, showing a smaller than expected fall in unemployment and average earnings and unit wage costs in line with market forecasts, had minimal impact on gilts, which finished modestly easier.
Outside the utilities, which made rapid progress on the Energy Group story, the stocks that caught the eye included British Aerospace and GEC, which made further rapid progress as the market continued to warm to the idea that events in France might drive the two leading UK engineering/aerospace groups into each other's arms.
National Westminster reacted predictably to reports that the bank had indicated that current forecasts are too high. Dealers also fretted about rumours the bank, might be forced into an rights issue funded acquisition.
