An attempt to drive the FTSE 100 index through its previous closing high failed yesterday morning and was followed by a sustained bout of profit-taking.
Such was the weight of selling, triggered mostly by a strong showing by sterling, but also by a disappointing public sector borrowing requirement, that an early 50point Footsie gain was almost wiped out.
Footsie closed with a modest 10.5 rise at 5,273.6, having risen 50.5 at its best, recrossing the 5,300 level in the process. The previous closing record, 5,330.8, was reached on October 3rd, 1996.
The second-line issues also closed off their session highs, but not to the extent of the leaders. The FTSE 250 index settled 20.2 ahead at 4,832.8, having reached 4,835.6 in mid-morning.
The FTSE SmallCap, meanwhile, was always on the upward tack, and was finally quoted up 6.6 at 2,362.6.
London suffered from the absence of any follow-through of the recent US rally, which has sustained Footsie's recovery. Wall Street was closed yesterday for Martin Luther King day.
London's early surge came as a direct result of Friday's 62-point rise on Wall Street and the widespread substantial gains across Asian markets.
Among the latter, Hong Kong stood out with a 5.6 per cent advance, with Seoul and Singapore up similar amounts and Tokyo 1.3 per cent firmer.
Takeover speculation helped fuel the initial gains in the UK market. Dealers said the focus of the rumours was the financial sector, where the banks have been on alert for a big bid for many months, and pharmaceuticals, where there have been rumours of a link between SmithKline Beecham and one of the big US groups.
In the event, there was a flurry of bid activity concentrated on Allied Colloids, the chemicals group, where Hercules, the original US bidder, announced its intention to raise its bid, only to be trumped minutes later by Ciba Speciality Chemicals, which moved into the stock market to snap up a near 5 per cent stake in Allied. Hercules then responded with an even higher offer of its own.
Pharmaceuticals provided three out of the top six performers in the FTSE 100 table, with SmithKline top and the three companies effectively accounting for the Footsie's gain.
Sterling's latest advance, especially against the deutschmark, caused problems for the engineers and other exporters, with Rolls- Royce, GKN and BTR coming under increasing downside pressure.
