Concerns that the near-failure last week of Long Term Capital Management, the US hedge fund, might be only the first of a series of disasters, had a restraining effect on London's stock market.

Such fears countered the widespread optimism in global markets that the US Federal Reserve's open market committee will opt for a reduction in interest rates after today's meeting in Washington. An announcement from the Fed is expected tonight.

Dealers were insistent that a cut of at least 25 basis points had already been factored into the market, while some said they were hoping for 50 basis points.

But a firm opening by Wall Street, which followed up last Friday's 26-point gain on the Dow Jones Industrial Average with a good initial showing, rescued London and other European markets.

The Dow shot up more than 125 points shortly after the US opening, driven by a big rally in shares in the banking sector, which responded to the prospect of a US rate cut.

Marketmakers, caught out many times in the recent past by false dawns , remained highly sceptical of the market's ability to maintain a positive stance for any length of time.

"We've finished steadier today but underneath the market really doesn't feel that good," said one marketmaker.

The smallcap stocks proved the market's most vulnerable area, with the stocks prices of two minnows, Car Group and Stentor, losing more than half of their respective values.

Turnover in the equity market topped the 1 billion mark, eventually reaching 1.09 billion shares, beefed up by a number of share buy-back operations, notably in Anglian Water..

Activity in Anglian alone accounted for 265 million shares, or about a quarter of total turnover in the market.