London's equity market made a cautious start to the trading week as investors held their fire after the recent rebound which has seen the FTSE 100 rally strongly from just below the 5,300 level.

And with the holiday season at its peak, activity was minimal with turnover falling away to 1.27 billion shares, one of the lowest daily figures this year. Setting the tone for what was mostly a tedious session in the market was a modestly weak trend on Wall Street on Friday where the Dow Jones Industrial Average dipped 38 points and the Nasdaq Composite 21 points.

And there was another worrying bout of weakness in the tech/telecoms areas of the market, which was only partly offset by an excellent showing by HSBC, the fourth biggest UK company by market capitalisation. HSBC delivered better-than-expected interim results. On the economic front there was confirmation that the UK's manufacturing sector had officially moved into recession, via a second consecutive quarter of decline, after data on industrial production and manufacturing output in June.

Although both sets of numbers were better than consensus forecasts manufacturing output was up 0.3 per cent and industrial production up 0.1 per cent there was no real support for the market following the news.

Dealers said investors were holding off from chasing the market any further until the Bank of England presents its quarterly inflation report tomorrow morning. The report is expected to provide further insights into last week's surprise decision by the bank's monetary policy committee to cut UK interest rates by 25 basis points.

Before that move, it had been widely thought the bank had finished its cycle of rate cuts and that the next move in UK rates would be up.

Adding to the London market's discomfort in the afternoon was a soft opening by Wall Street, where the Dow and the Nasdaq were both under pressure and weakened by bearish comments by a number of brokers, affecting Intel, the world's biggest microprocessor manufacturer.

At the close of trading the FTSE 100 index was down 21.1 at 5,526.4, having been down 31.6 at its session low.

The FTSE 250 eased 9.4 to 6,189.3, the SmallCap 2.7 to 2,774.0 and the Techmark 100 10.52 to 1,59.4.26.