London's stock market was in good form for much of yesterday with the two leading indices, the FTSE 100 and the FTSE All-Share, hitting intra-day records and the latter posting a new closing high.
Meanwhile, the FTSE Mid-250 and SmallCap indices were left on the brink of new closing peaks, with the Mid-250 having broken its previous intra-day record.
The day's triumphant performance was almost, but not quite, ruined by a sudden burst of weakness in the FTSE-100 future during the last 30 minutes of trading. Dealers noted a series of big arbitrage operations, said to have been linked to over-the-counter options expiries, but also said to have been Europe-wide.
Wall Street, which opened on a buoyant note, also came under pressure, with the Dow Jones Industrial Average suddenly losing an early 50-point gain.
The earlier surge in share prices mostly came before the monetary policy committee's decision to leave domestic interest rates on hold. Meetings over the last two days have also left US and German interest rates unchanged.
While the interest rate news was undoubtedly helpful, the prospect of further bids, added to expected share buy-backs and special dividends, fuelled the buying spree.
During the last nine trading sessions, the FTSE 100 has risen 425.0 or 10 per cent, with takeovers and mergers exciting the market on an almost daily basis.
The FTSE 100 index ended the day a net 10.6 up at 5,606.4 having spiralled up to an intra-day record of 5,675.1 in mid-morning when the market was alive with rumours of an imminent bid or merger in the financial sectors.
The FTSE All-Share index finished 6.26 ahead at a closing high of 2,599.85 after hitting 2,623.63. The FTSE Mid-250, meanwhile, just failed to surpass its previous closing peak, ending 20.2 firmer at 4,956.0, having topped its previous intra-day peak and reached 4,965.5.
The FTSE SmallCap ended the day 10.1 firmer at 2,403.3, agonisingly close to its previous closing high of 2,407.4.
Marketmakers, still stunned by the weight of support for the market in recent sessions, said there was evidence of increasing cash coming into British stocks from domestic institutions and abroad.
"It's still the weight of money argument that it is pushing us better, but I must admit to feeling increasingly anxious at the way the market has erupted; I would tread very carefully from here," said the head trader at one big European securities house. But he also warned that the bid rumours in bank and insurance sectors were growing louder every passing day.
NatWest markets' strategy team, which lifted its end-1998 FTSE-100 forecast from 5,700 to 6,000, insisted that "even at current levels, the UK equity market does not look over-expensive". It told clients to "stick with the defensive plays that performed well in January".
Turnover in equities reached 1 billion shares by the 6 p.m. point. This all came as Imperial Chemical Industries became the latest victim of sterling's strength, saying £190 million had been wiped off its annual profits.
That strength and a poor performance at its bulk chemicals businesses masked improvements at other operations including Dulux paints.
But the City was pleased with progress after a series of major deals last year which transformed the company and shares rose 39p to 978p.
Analysts said further rises in interest rates would damage other exporters, but the upbeat market helped lift engineer Siebe 13p to £11.35, British Steel up 3 1/2p to 137 1/2p, and Smiths Industries 3 1/2 higher to 758p.
