Worries that Wall Street's 156-point slide on Friday would exact a heavy toll on London's equity market proved short-lived yesterday as share prices recovered strongly from an early bout of weakness to close with widespread gains.

There was some help to the market from July's producer prices figures.

The data were said to have reinforced market perceptions that British interest rates may well have peaked in the short term after the monetary policy committee said last week that rates had "reached a level consistent with the inflation target".

There were other downside forces at work as trading got under way. A long list of heavyweight stocks was quoted ex-dividend, lopping in excess of 15 points from the FTSE-100 index, with BT also burdened by a 35p special dividend payment. BT's routine interim payment accounted for 4.4 points off the index with the special 35p payment accounting for a further 12 index points.

Dealers also said the market had been jolted by the July Merrill Lynch/Gallup survey of British fund managers which found that sellers of British equities outnumbered buyers by 12 percentage points. In contrast, buyers of gilts outnumbered sellers by 22 percentage points.

At the finish of a typically sluggish summer trading session, the FTSE-100 was comfortably above 5,000, ending 0.6 higher at 5,031.9. At its worst the index fell 64.9, losing the 5,000 level in the process.

There was an uncomfortable start for leading stocks, which were marked down sharply as market-makers erred on the side of caution after Friday's near 2 per cent sell-off on Wall Street.

The US market's decline had been prompted by fears that the Federal Reserve might nudge interest rates higher after the next meeting of its Open Market Committee meeting, scheduled for August 19th.

But with no evidence of any sizeable selling pressure, Footsie gradually regained its composure. It had recaptured all the lost ground by lunchtime and at its peak, minutes after Wall Street opened, posted a near 20-point gain.

The smaller company indices were affected by overall market sentiment, but still finished with impressive gains, building on their strength last week after sterling began to wilt.

The FTSE Mid-250 index closed 21.1 up at a session high of 4,671.6, only 57.8 below its all-time intra-day high of 4,729.4, reached in March this year.

The FTSE SmallCap ended 8.9 firmer at 2,218.7, but remains well shy of its record intra-day level - 2,374.2 - also reached in March.

A senior market-maker at one big European securities house said there had been concern that Friday's US weakness might trigger a fresh downside reaction in British stocks. But as one trader put it: "All we saw was a consistent stream of small buyers; this market is well underpinned."

Turnover at 6 p.m. was a rather disappointing 675.9 million shares.