A GROWING conviction that Mr Kenneth Clarke, the Chancellor of the Exchequer, will resist arguments from the Bank of England to increase British interest rates led to further big gains in British equities yesterday.

The Chancellor is due to meet the bank governor, Mr Eddie George, this morning to debate monetary policy. There have been calls from some economists for a rise in British rates to inhibit inflationary pressures.

An initial bout of strength in equities developed into a full-blown bull run during the late afternoon as Wall Street came in guns blazing to post a 30-point rise on the Dow Jones Industrial Average an hour after the opening.

Wall Street's latest surge came in the wake of encouraging news on US core inflation, which rose only 0.1 per cent last month below consensus forecasts.

The Dow jumped to yet another record high as economists said the data further reduced the chances of a rise in US interest rates. The US Federal Reserve's Open Market Committee, which dictates monetary policy, is scheduled to meet on February 4th.

With marketmakers in London clearly reluctant to carry large lines of stock on their books it took only minimal bouts of buying interest to trigger big gains in share prices.

Marketmakers remain terrified of being left with stock in the event of a sudden sell-off on Wall Street, which many observers see as overvalued.

Demand for shares yesterday drove the main FT-SE indices including the All-Share, 100 and SmallCap, to new intra-day and closing records, with only the Mid-250 falling short of its peak.

The 100 closed 60.9 up at a peak of 4,168.2, while the SmallCap, which has outpaced its larger brethren recently, added 10.4 at 2,257.8. The FT-SE 250 rose 22.3 to 4,557.2, only 11 points short of its all-time closing peak of 4,568.6, recorded on April 26th, last year.

The FT-SE 100's 111.6 point gain over the past two sessions is the biggest two-day rise since 1994.

Dealers said London had begun to chase Wall Street, after under-performing for so long, and was also responding to increasing talk of imminent bids and mergers. One leading market maker noted ominously: "Everybody seems to have forgotten Alan Greenspan's warning of `irrational exuberance' in markets."

Turnover once again reached one billion shares by 6 p.m. Monday's retail business was worth £1.28 billion sterling.