Confirmation of last week's stock market rumour that a big bid or merger was in the pipeline came when Alliance & Leicester and Bank of Ireland said they were holding merger discussions. It gave a substantial but ultimately brief fillip to London's equity market for much of yesterday.

That news saw the whole of the banking sector race ahead, with dealers adopting the view that the Alliance & Leicester deal, which if cleared by the British and Irish authorities will bring substantial cost savings to both banks, could be the first of a series of moves that will see a fundamental consolidation of British banking.

But the market failed to hold the gains recorded in the early part of the session, as a weak performance by Wall Street shortly after the opening and worries about corporate profitability, outlined in the latest data on British gross domestic product published by the Office of National Statistics, began to erode sentiment.

Initially enthused by the bank story, the FTSE 100 raced ahead from the outset of trading, pushing up 109.2 to 6,462.3 at the day's best, only to turn easier as Wall Street came in on an uncertain note.

And the turnround in the market also affected the second-rank stocks, where the FTSE 250 index, up 22.4 just before midday, subsequently turned lower to close the day a net 8.2 lower at 5,710.2.

The SmallCap was the only FTSE index to manage a gain on the day, edging up 4.4 to 2,570.5, not that far away from its session high of 2,571.7.