Interest rate optimism, allied to a strong start on Wall Street helped all the main UK indices gain ground yesterday. The latest economic data was mixed. Manufacturing output rose 0.3 per cent on the month in December (and 1.6 per cent on the year) but industrial production fell 0.6 per cent on the month because warmer-than-normal weather depressed oil and gas production. Meanwhile, the Halifax house price index showed a gain of 0.1 per cent on the month in January and 0.9 per cent on the year.

But nothing in the data prompted investors to alter their view that the Bank of England's monetary policy committee, which meets today and tomorrow, will cut interest rates by a quarter of a percentage point. That will be the first change in rates since February 2000.

The economics team at ABN Amro said: "Current domestic conditions provide scant justification for policy loosening. But, armed with a new forecast likely to show underlying inflation running comfortably below target for the rest of this year, there is little inflation risk in taking out some short-term insurance against the disinflationary consequences of a prolonged US slump. While we suspect it will ultimately have to be reversed, a 25 basis point cut looks inevitable."

Sterling lost ground yesterday, falling from 104 to 103.6 on the trade-weighted index ahead of the expected rate cut, and giving a boost to exporters. A rate cut should also help cyclical stocks.

Meanwhile, the bulls seemed to be back in charge on Wall Street, with the Dow Jones Industrial Average passing 11,000 for the first time since September and the Nasdaq Composite also opening strongly.

The Techmark 100 index of leading technology stocks gained 12.91 to 2,719.1. Technology stocks managed to shrug off some gloomy news from overseas from Toshiba, Taiwan Semiconductor and Applied Micro Circuits.

There were strong gains in the FTSE 250 for Imagination Technologies, IQE and Kewill Systems. Halifax led the way in the FTSE 100 with the market reacting well to its proposed acquisition of Equitable Life, while the rest of the banking sector was also strong ahead of the results season.