LINGERING fears of an imminent rise in US interest rates rattled investors in London yesterday and sent blue chips slumping by more than 1%.

With British and American

markets braced for today's US producer prices and retail sales reports, the benchmark FTSE-100 share index back-peddled from the outset to close 71.6 points or 1.2% lower at 5956.7 - 2.4% below its record close of 6105.8 set on April 6.

A sharp fall on the Hong Kong bourse also spooked leading UK shares, although second liners on the FTSE-250 mid-cap index managed to close 7.3 points stronger at 5779.7. Gilts meandered lower in response to a tumble in US Treasuries, while June futures settled 28 basis points down at 108.14.

In the share market, key sectors were hit by a crushing wave of profit-taking as a number of retail and manufacturing stocks fell on the back of gloomy news on High Street sales and that exporters were technically in recession.

As on so many previous occasions, volatility among financial stocks dragged the Footsie down.

Commercial Union skidded by 46p to 1076p, General Accident plunged 45p to 1360p, while HSBC deflated 46p to 1759p and Lloyds TSB cooled 9.5p to 900.5p.

Retailers also suffered with Debenhams down 8p to 392.5p and Storehouse lost 3p to 243p.

However, Kingfisher, which owns companies such as Woolworths and B&Q, surged 48p to 1095p. Analysts said this was

due to continuing peculiarities with SETS, the Stock Exchange's electronic order book.

The telecoms sector was hit by profit-taking as expectations of a mega-merger in the UK subsided. Hopes of a deal were high after a major telecoms tie-up took place in the US on Monday.

Vodafone and Orange failed to hold on to their gains and they fell 20.5p to 669.5p and 6p to 449p respectively. BT also dropped 5p to 653p.

Courtaulds gained 9p to 473p on rumours that US paints group PPG International was set to table a bid to counter Akzo Nobel's #1800m offer.

Meanwhile, gases company BOC Group added 3.5p to 976p on its interim results announcement, which showed underlying sales growth in three of its four key divisions.

Vickers dipped 6.5p to 239p as the prospect of a bidding war between Volkswagen and BMW for its Rolls-Royce Motor Cars business faded.

BMW said that it would stick to its lower offer of #340m and not attempt to trump VW's bid of #430m.

Sunderland-based brewer Vaux boosted pre-tax profits in the last half year, helped by like-for-like sales at its Swallow Hotels unit, but its shares cooled 3p to 267.5p on profit-taking.