The London equity market's euphoric response to Tuesday's better-than-expected inflation data carried over into yesterday's session, driving the FTSE 100 up to new intra-day and closing peaks.

But the upward momentum was slowed appreciably within an hour of the opening, after an average earnings report which, as one dealer put it, "brought an instant dose of reality" to proceedings. At the end of a volatile session, the FTSE 100 index finished 51.3 up at a closing record of 6,151.5, having peaked at 6,179.8.

News of a stronger-than-forecast 5.4 per cent increase in average earnings in the year to April, compared with a consensus forecast of 5.2 per cent, was viewed by dealers as extremely worrying, in spite of the decline in inflation last month.

The increase revived worries that such rapid earnings growth might induce the Bank of England's monetary policy committee to nudge British interest rates higher after its next meeting, scheduled for early August.

A sharp increase in earnings prompted the committee to announce a surprise increase in rates in June.

Also causing concern was the publication of the June meeting minutes, which revealed the committee voted eight-to-one to lift rates.

Footsie's early advance stalled. The index's 80-point gain was reduced to one of less than 30 points in mid-morning. But sentiment was given a further boost after lunch as Wall Street built solidly on Tuesday's performance, when the Dow Jones Industrial Average raced up just short of 150 points to finish at a record high.

Shortly after the opening yesterday, the Dow was up a further 50 points, only to slip into negative ground later in the US session.

The international background was generally supportive. Asian markets put up a good show, led by Hong Kong which ran up over 3 per cent.

Second-liners and smallcap stocks also made progress but were left trailing in the wake of the leading index. The FTSE 250 drove up 39.6 to 5,697.7 but remains a long way - 268 points - from its record closing level of 5,966.6 reached last June.

The FTSE SmallCap, meanwhile, moved up 4.8 to 2,581.6 and is still over 200 points from its record close, 2,792.7, reached in May this year.

Market-makers, caught on the hop by the sudden surge in prices, said much of the momentum came from a big squeeze in the Footsie future and warned that, once the grip was loosened, prices could fall back equally sharply.