LONDON REPORT: It was another tense and frantic session in London's equity market yesterday with the benchmark index, the FTSE 100, blowing hot, cold and hot again as the session drew to a close.

Events were again dominated by the intense fear in the market that the recent large-scale weakness in equities had prompted some forced selling of stocks by life assurers, selling equities to maintain solvency ratios as required by regulatory authorities.

Dealers said there were strong hints that at least one and possibly more of the life companies had again been aggressive sellers of the FTSE future. Much of the weakness in the 100 index has derived from the futures market over the past few sessions. Volume in the FTSE future expiring in September rocketed to 159,000 contracts, ahead of Monday's 123,000 contracts, itself one of the heaviest volumes for some time.

Initially buoyed by a strong rally on Wall Street late on Monday evening, the index subsequently ran into another heavy burst of derivatives-inspired downside pressure in mid-morning, only to rally later in the session as an early big slide in US markets was replaced by a good recovery.

The US rally came as markets began to warm to comments made by US Federal Reserve chairman Mr Alan Greenspan in the twice-yearly testimony on monetary policy to the Senate banking committee. He said the US economy was growing at a faster rate than the Fed had expected and the Fed was unlikely to begin tightening US monetary policy. He reassured markets about US accounting procedures, saying that the "system is frayed but not broken".

The FTSE 100 index finished the session a net 27.4 higher at 4,021.9, having been up as much as 85.5 in the first hour of trading and down 134.2 in mid-morning. But while the 100 index entered positive territory by the close of the session, there was more pain for the wider market, where the FTSE 250 lost another 88.9, or 1.8 per cent, to 4,824.5, after a low of 4,801.4. The FTSE SmallCap also suffered, sliding 38.8, or 1.8 per cent, to 2,087.8. The Techmark 100 fell 2.5 to a closing low of 747.72.

June inflation data released by the Bank of England, which showed inflation had fallen to 1.5 per cent over the past year, its lowest level since records began 27 years ago, surprised the market.

Turnover in equities reached 3.5 billion, the heaviest daily turnover since last November.

- (Financial Times Service)