The British corporate sector's enthusiasm for mergers came to the rescue of the London market yesterday, after the recent rally had appeared to run out of steam towards the end of last week.

However, just as it looked as if the market was about to establish a set of all-time highs, the screen was hit by a wave of selling. In the last minute of trading, the FTSE 100 index dropped nearly 15 points, from 5,634.3 to 5,619.9, up 37.6 on the day.

The record closing, set on February 6th, was 5,629.7. The All-Share was also robbed of a record, finishing at 2,609.38, compared with a closing peak of 2,609.93.

However, the FTSE 250 index did managed to edge up to a new high, closing 1.7 ahead at 4,991.9.

The weekend had seen revived speculation about the possibilities of a Barclays-NatWest link-up, and traders duly chased the banking sector higher.

Four of yesterday's leading 11 Footsie stocks were banks. Prior to the Lloyds TSB results on Friday, there had been signs of profit-taking in the sector.

As well as the rumoured deal, some concrete news came when supermarket groups Kwik Save and Somerfield said they were in merger talks. The report had a far more beneficial effect on the shares of the former than of the latter, but it added a bit of takeover spice to yet another stock market sector.

"Corporate restructuring is coming to industries where you might not have expected it," said Mr Michael Hughes, group economic adviser at Barclays group. "Restructuring plays are not just in pharmaceuticals and banking."

There was some modest weakness at the start of trading, as investors reacted to some falls in Asian markets and currencies, and the FTSE 100 index was down 3.8 points at 5,578.5 at its worst. Another profits warning, this time from the retailer Thorn, reminded investors of one of the threats to the bullish case.

But the market was quickly into its stride and by 10 a.m. the Footsie had regained the 5,600 level.

With Wall Street closed for Presidents' Day, there was nothing to disrupt the market's momentum in the afternoon.

Only a last minute blizzard of red on the trading screen, attributed to a late programme trade, ruined the day for the bulls.