The London market steadied itself after Wednesday and Thursday's losses and finished the week on a fairly upbeat note. The market's upward progress had been halted earlier in the week by interest rate fears in the wake of the Bank of England's quarterly inflation report.

But Mr Richard Kersley, of CSFB, thinks the peak in UK rates is still in sight, and with institutions still having large cash holdings, he believes that provides the London market with underlying support.

When trading opened, further weakness in some of the Asian markets outweighed Wall Street's late Thursday rebound, to send the FTSE 100 index lower. At its worst, Footsie was 21.7 points lower at 5,530.8.

But some good results from the banking sector helped sentiment to revive and the market was in positive territory by 10 a.m.. In the afternoon, the Dow Jones Industrial Average quickly lost 50 points before steadying. But the negative start in New York failed to put much of a dent in London's performance.

Footsie closed at its best level of the day, up 29.8 at 5,582.3, although that still left it down 47 points on the week.

The FTSE 250 index, which has been outperforming all week, edged higher again, rising 6.3 points to 4,990.2. Over the week, it gained nearly 20 points.

Meanwhile, the SmallCap index set yet another all-time closing peak, ending 0.9 ahead at 2,426.0, for a 15.4 point gain on the week.

After suffering from a sell-off on Thursday, Lloyds TSB rebounded sharply on the back of figures which were more than enough to keep the market happy. Barclays and Woolwich report next week.

The banking sector has been strong in early 1998, helped by its defensive qualities in the face of sterling's strength and the Asian crisis.

The pound received a further shot in the arm this week from the Bank's hawkish comments on interest rates and it gained another two pfennigs against the deutschmark to DM2.9848 yesterday. The trade-weighted index moved up 0.6 to 104.9.

But some analysts think this sector imbalance may have gone too far. "Triggered by corporate activity, the FTSE 100 has moved to new highs," said Mr Richard Jeffrey, Charterhouse group economist. "Sector performance remains extremely varied, however. General industrials have fallen back, while old favourites, the financials and pharmaceuticals, have made dramatic progress. These latter sectors may find it hard to fulfil expectations; industrials look excessively cheap."

After the weekend, trading is expected to be subdued on Monday, with the US market closed for Presidents' Day. The main domestic economic news will be retail sales figures for January, which are expected to show a sharp rebound after December's 0.1 per cent seasonally-adjusted fall.

Volume was 825.5 million shares by the 6 p.m. count.