The prospect of a rise in domestic interest rates, combined with a firm Dow Jones Industrial Average and easier Nasdaq Composite index, made for an uncertain trading session in London stocks yesterday.
Turnover in the stock market showed few signs of flagging after its recent acceleration which saw activity approaching the extremely high levels reached during November and December.
Dealers said the market had begun to settle down after its recent bout of turbulence, which saw stock prices - especially in the leaders - plummet before rallying strongly in the wake of the planned AOL/Time Warner merger.
"There has been plenty of programme trading recently, partly on asset allocation moves," said one market-maker.
He said the market has mostly priced in a 25-basis points increase in domestic interest rates, after recent evidence of sharp gains in house prices and evidence of higher than expected retail sales.
"The alternatives are not good," he continued. "To leave rates on hold would be interpreted as lacking conviction, while 50 basis points might upset sentiment."
At the finish of the session, the FTSE 100 was left showing a 13.9 point gain at 6,532.8, its best of the day, boosted by an impressive opening performance by the Dow Jones Industrial Average, which posted a near three-figure gain towards the London close.
Of the other FTSE indices, the FTSE 250 index was dragged down by a dismal showing by Eidos, the computer games manufacturer, whose shares plummeted 16 per cent amid worries about flagging sales of its Tomb Raider 4 game. The 250 closed 51.0 lower at 6,532.1, only a shade above its session low of 6,531.0.
The FTSE SmallCap, meanwhile, gave perhaps the best performance of the FTSE indices, never looking likely to finish in negative territory and eventually settling a net 5.9 higher at 3,175.4, another all-time closing high.
Retail stocks provided most of the day's talking points, with Dixons, which outpaced the sector for much of last year because of the hugely successful float of its Freeserve subsidiary, plunging over 20 per cent after announcing a worrying squeeze on margins.
Marks & Spencer, on the other hand, was in the FTSE 100's top 10 performers all day, as the market registered its relief at the Christmas trading update and amid renewed take-over speculation.
Turnover in equities continued to expand, reaching 1.85 billion shares by the 6 p.m. cut-off point and with Vodafone AirTouch again occupying top spot with 88 million shares changing hands, almost 5 per cent of the overall total.
