THE British equity market's drive to new all time highs ran out of steam yesterday as the big investing institutions pulled back from the market.
They preferred to sit on the sidelines to await the testimony on US monetary policy to be delivered to Congress tomorrow by Mr Alan Greenspan, the chairman of the US Federal Reserve.
He sent global markets into a tailspin in December when he warned of "irrational exuberance" in financial markets.
Along with the nervousness surrounding the Greenspan speech, the London market was uncertain how to react to the pledge by Mr Gordon Brown, the shadow chancellor, that a Labour government would not increase the basic or top rates of income tax during its first term of office.
The shadow chancellor's pledge on tax accompanied a series of promises not to include the food, newspaper and children's clothes sectors in the VAT net.
At the close, the FT-SE 100 index had lost the 4,200 level, closing 13.7 down at 4,194.0 and the FT-SE 250 eased 3.2 to 4,580.2.
The FT-SE SmallCap's remarkable run of out performance, which has seen that index gain ground on every trading day this year, stuttered to a halt yesterday. The SmallCap settled 1.2 off at 2,286.7.
Labour's plans for a windfall profits tax on the utilities also caused ripples of unease, although the party said it would not quantify the tax moves until the election.
Marketmakers said the London market had made a rather feeble attempt to move into uncharted territory at the start of the session, responding to Wall Street's latest move to new peaks last Friday, when the Dow Jones Industrial Average punched through the 6,800 level.
Helped by an early decline in sterling, Footsie got to within a point of its previous intra day record, but quickly ran out of steam and continued to lose ground for the rest of the session.
With the US bond market closed for the Martin Luther King holiday, and business on Wall Street curtailed by the inauguration of President Clinton, there was little real impact on London from the US.
The Dow slipped about 20 points shortly after the opening, but gradually clawed its way back to post a small gain 90 minutes after London closed.
Commenting on short term prospects for London, traders said that US and British markets looked overstretched but had appeared that way for many months.
There were ominous rumblings that many big marketmaking firms have been badly hit by the market's turbulence in December and that the consequent losses may have prompted the big firms to avoid any large scale positions.
"We're in for plenty of hiccoughs and headaches in coming weeks," said one senior dealer, emphasising the likelihood of further big market moves.
Turnover in equities was a respectable 751.2 million shares. Customer business on Friday was worth £1.44 billion sterling.
