TALK of a series of switching operations, involving institutions shifting funds from British equities into gilts, plus a continuation of sterling's recent strength, kept the pressure on London stocks yesterday.
Rumours of a switch between the two markets was highlighted by signs of heavy business in index options. Gills reaped the benefit with the 10-year and 20-year issues around 22-24 ticks ahead near the close.
The FTSE 100 index, which has had to cope with flurries of selling pressure since last week's surprise British interest rate rise, endured another buffeting yesterday, closing 7.0 off at 3,921.1.
But there were other potent reasons behind equities' poor showing yesterday. Sterling's strength against leading currencies was said to have affected the big international stocks and dealers continued to worry about the possibility of further increases in base rates in the run-up to the general election.
The US election, held yesterday, was another factor said to have troubled European markets at the outset, with some bears adopting the view that a landslide victory by President Clinton and congressional Democrats could result in a vigorous spending programme.
Also worrying traders was the sell-off in the second-liners and small cap stocks yesterday. The FTSE 250 underperformed the leaders, sliding 13.2 to 4.405.2, while the Small Cap index retreated 3.1 to 2,160.9.
There was more bad news with disappointing figures from Marks & Spencer, Britain's leading retailer. M&S shares, heavily weighted in the FTSE 100 index, dropped more than 5 per cent, causing considerable damage to sentiment in the consumer sectors.
Footsie kicked off the session on the back foot, slipping some 7 points shortly after the opening. and fell further during the morning, with the index down just over 17 points at worst.
The midday release of BP's third-quarter numbers gave a boost, and Footsie embarked on a gradual rally which took it back to almost level before it fell away again.
Wall Street's strong rise early yesterday helped London stocks regain some confidence. The Dow Jones Industrial Average was up over 40 points not long after the US market opened.
Marketmakers said the emergence of a series of medium-sized programme trades indicated that much of the sell-side activity by institutions had been completed, although some adopted the view that the potential for further increases in British interest rates would result in further falls.
Turnover at the 6 p.m. count was 781.9 million and split evenly between leaders and second-liners. Customer business on Monday was a lowly £1 billion sterling.
