THE leading 100 shares bounced back towards the 5900 level yesterday as confidence grew that the Bank of England will not raise interest rates today.
The City is disregarding the more hawkish sentiments in the Bank's monetary policy committee, inclining to the view that the economy is cooling, manufacturing is technically in recession, and consumer demand is not strong enough to stoke up inflation.
Yesterday's consumer credit figures showed the weakest demand since last September when the death of Diana, Princess of Wales, kept borrowers at home and High Street spending figures have come in lower than expected.
The next key economic signal comes tomorrow with US employment figures.
The FTSE-100 index hit 5913.6 but closed 56.1 points ahead at 5989.4, a 1% rise, as Wall Street failed to follow strong performances in the European bourses.
Leading shares rose 1.5% in France and 0.5% in Germany.
The FTSE-250 climbed 0.4% to 5920.4 to reach its previous high set last week.
''The market is basically still churning sideways,'' said one dealer. ''We are range-bound between 5800 and 6000 and it will be hard to break out of this environment.''
The market proved to be ahead of the game as Railtrack, which rose 63p on Tuesday, steamed on 41p to 1310p as Deputy Prime Minister John Prescott confirmed that the utility would be involved in the revived Channel Tunnel rail link - and so would the Government.
Renewed merger talk in the drugs sector boosted Zeneca by 50p to 2587.5p and Glaxo Wellcome by 47p to 1683p.
SmithKline Beecham was also helped by the granting of a new drug licence in the US and put on 13.5p to 655.5p.
The banks again looked a safe haven with HSBC up 35p to 1603p, Lloyds TSB rising 4.5p to 891.5p and Alliance & Leicester 16p higher at 820p.
Mirror Group shares lost 10.5p to 233p as potential German bidder Axel Springer continued to keep investors in suspense. But in the regional press, a doubling of pre-tax profits by Bristol United Press pushed the group's shares up 32.5p to 510p.
The September 10-year gilt closed 10 points lower at 109.91 and analysts said it could drop to 109.50 over the next few sessions.
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