SLUMPING Asian bourses, a wobbly start on Wall Street as well as worries over the direction of global interest rates and a dispute between the US Government and computer giant Microsoft combined to rattle the City yesterday.

''There are lots of concerns over where interest rates are going and what might happen in Asia,'' said a broker at a leading investment bank in London.

''So there is every reason at the moment for people to do very little and that is exactly what they are doing,'' he added. Share markets in Hong Kong, Indonesia, Thailand, Singapore, Australia and Malaysia all clocked up sharp overnight losses although the troubled Japanese bourse managed a modest gain.

Dealers said the threat of fresh protests against autocratic

President Suharto in Indonesia would continue to upset Far

Eastern markets this week.

Sentiment in equity markets throughout Europe was also undermined by increased concern over interest rates before today's meeting of the US Federal Open Market Committee even though most analysts expect the cost of borrowing to remain steady.

On Wall Street, investors' fears about hi-tech stocks hit the market as Microsoft shares fell after talks with the US Government collapsed at the weekend. The gloom increased after the Justice Department and state attorneys-general announced that they undertaking antitrust lawsuits against Microsoft, accusing the software giant of illegally exploiting its Windows monopoly.

When the UK exchange closed for business, the benchmark FTSE-100 index had fallen more than 1.5%, or 91.6 points, to 5826.2. The FTSE-250 index of mid-cap issues finished the session 5.3 points off at 5792.5.

Gilts, however, closed firmer after a weak start, rebounding with sterling, which gained slightly on the German mark. June futures were 0.13 higher at 107.67.

Although many blue chips took a beating in share dealing, insurers General Accident and Commercial Union rallied in a bounce after recent falls. Perth-based General Accident rose 7p to 1322p, while Commercial Union jumped 6p to 1052p.

Elsewhere, the retail sector was buzzing with excitement after weekend press reports that said supermarket group Asda and retailer Kingfisher were in talks.

Both companies admitted having negotiations, but said they were discussing possible retailing tie-ups and were definitely not merger talks.

Asda slipped 3p to 180.5p, while Kingfisher, which takes in Woolworths, gained 5p to 1072p.

Heart of Midlothian rose 2.5p higher to 102.5p after the football team clinched a 2-1 victory over Rangers in the Tennents Scottish Cup Final.

Thomson Travel eased 2.5p to 195.5p on the first full day's trading since it floated last week at 170p.

Halifax rose 15.5p to 792p and Royal Bank of Scotland nudged up 14p to 985.5p after speculation they were considering a merger - keeping alive hopes of a major banking deal.