London's equity market gave a muted response to news of a potential merger involving one of Britain's biggest pharmaceutical companies, SmithKline Beecham.
The news initially sent the share price of SmithKline Beecham and other pharmaceutical stocks spiralling up to all-time records, before a late slide left SmithKline pennies easier on balance. Stripping out the drug stocks, the FTSE 100 index would have shown a loss throughout the session.
In the event, the index finished the day 4.6 higher at 5,278.2, still well short of its all-time closing high, 5,330.8, and 89.1 below its intra-day record.
The index hit those records in early October, just before the turmoil that engulfed Asian currency and stock markets.
A clearer indication of the overall state of the market was provided by the FTSE Mid-250 which, although never under any great selling pressure, was in negative territory all day, eventually closing 11.9 down at 4,820.9.
The market's smaller stocks were similarly restrained, with the FTSE SmallCap index closing 0.4 easier at 2,362.2.
Stories that SmithKline Beecham had been discussing a merger with American Home Products, the third biggest of the US drugs groups, were circulating in the market late last week.
Confirmation that talks had taken place saw SmithKline Beecham shares erupt, along with those of similar drug stocks such as Zeneca, Glaxo Wellcome and Nycomed, as investors decided the move heralded another round of consolidation in the pharmaceuticals industry.
Between them, Zeneca and Glaxo Wellcome accounted for a gain of around 10 Footsie points. On Monday, the drug stocks were responsible for all but half a point of the index's gain of 10.5.
Outside the drugs companies, it was mostly a gloomy day in the market, with many engineering and other exporting stocks initially weakened by an early upward move by sterling.
However, later in the day, sterling slipped back below the DM3 level after some cautious words from the governor of the Bank of England.
Footsie fell away to record a 23.0 fall early in the session, as big institutions refused to get drawn into paying high prices for stock, preferring instead to book profits in some of the market's recent winners.
Asian stock markets, which have tended to give a lead to European markets in recent weeks, looked generally more secure yesterday morning.
Footsie's winners included Cable & Wireless, whose Hong Kong subsidiary is to receive a big cash compensation payment for relinquishing its exclusive licence over international calls.
On the downside, Prudential took a pasting after some disappointing new business figures from Jackson National, its US life division.
Turnover continued at relatively high levels.
