The London equity market's sequence of gains and record closing highs was finally brought to a halt yesterday as global markets registered increasing concern about the possibility of military action against Iraq.
Adding to the market's slight discomfort was the uncertainty over whether the monetary policy committee would recommend a shift in domestic interest rates. A decision will be announced at midday today.
That news will coincide with the decision by Germany's Bundesbank council on the course of German interest rates. The US Federal Reserve's open market committee decision on US interest rates was not known during London market hours yesterday.
"Everyone was slightly shocked that we had no fresh bid stories today. We've been spoilt by the recent burst of takeover news, so a small bout of profit-taking was inevitable," noted a senior market maker.
He insisted that the selling in the market was never sizeable. "It would be very difficult for fund managers, who have been taken to task for under-performance against the market recently, to justify going even more underweight.".
The FTSE 100 index succumbed to the profit-taking and finished with a 17-point decline at 5,595.8, ending seven straight sessions of strong gains, the last five of which saw the index register record closing highs.
Although there was no takeover news, the market heard of another big special dividend announcement, expected to be the first of many this year.
Dalgety, the food manufacturing group, said it would return £650 million sterling to its shareholders via a special dividend after selling its pet foods business to Nestle, the Swiss food giant, for £715 million.
That news triggered a rise in Dalgety shares, which shot to the top of the FTSE 250 performance table, and helped to push the index up 19.9 to 4,935.8 - ever closer to its all-time closing high of 4,963.0.
Similarly, the FTSE SmallCap index crept to within 13 points of its record closing high, responding to fresh waves of buying interest, mostly triggered by takeover hopes.
The FTSE 250 and SmallCap indices have been left behind by the FTSE 100 index over the past month, three months and year, according to the strategy team at NatWest Markets.
The FTSE 100 delivered total returns over those periods of 6.3 per cent, 13.1 per cent and 31.7 per cent, compared with the FTSE 250's 1.7 per cent, 5.3 per cent and 9.3 per cent and the FTSE SmallCap's 2.6 per cent, 3.1 per cent and 5.9 per cent.
There was no real help for European markets from Wall Street, which fell away at the outset of trading, unsettled by the remarks about the potential for an escalation of any flare-up in the Middle East attributed to Boris Yeltsin, the Russian leader. The Dow Jones Industrial Average dipped by around 50 points not long after the opening bell.
Turnover came out at 900 million shares, well up to recent levels.
