But best levels were not held. The FT-SE 100 share index ended 13.9 points up at 2,759.2.
Many observers believe the next interest rate reduction will not occur until nearer the Budget, scheduled for 16 March.
However, the tantalising scent of cheaper money was sufficient to end the seven-day decline, with trading again robust.
Imperial Chemical Industries, up 20p to 1,093p, had the distinction of leading the market higher with the US securities house Paine Webber apparently telling clients that the shares could double in the next two years.
Within the next month ICI is expected to decide whether it should hive off its drugs division, Zeneca. Already the drugs business is operating as a separate entity and the demerger is widely expected to go ahead.
The Paine Webber embrace does not find unanimous support in the City. Many analysts are far from convinced about the merits of the deal.
But US backing could have a significant impact on ICI shares. Once the Americans take a shine to a stock their influence can be considerable. And, with the New York market expected to make little progress this year, they are thought to be scouting overseas.
British Petroleum's ability to hang in above the 200p level has been largely due to transatlantic interest in the face of general UK scepticism. And Glaxo Holdings, although now sinking out of favour, has enjoyed a remarkable run on the back of the Americans.
If ICI should become the new darling of the US investment community its shares could enjoy a dramatic re-rating.
But Glaxo continued to mirror the growing US disenchantment with drug shares. The fear of health spending cuts in this country and Europe and by the incoming Clinton administration in the US has left many drug shares looking decidedly under the weather.
Glaxo fell 10p to 714p against a high last year of 943p. Wellcome improved 13p to 924p on talk of an article in the Lancet medical journal which favoured its Retrovir anti-Aids drug.
British Aerospace perked up 7p to 177p. Its long-awaited deal with Taiwan is expected to be completed in the next few days. The pounds 240m venture to develop and make regional aircraft is seen as being crucial to BAe's restructuring programme under its chairman, John Cahill. Rolls- Royce rose 4p to 110p.
Bank shares were firm, spurred by TSB Group and suggestions that recent falls had been overdone. TSB jumped 9.5p to 156p and Barclays 7p to 374p. Lloyds Bank edged ahead 5p to 511p. There is a growing suspicion that it has a significant deal in its sights.
TSB is regarded as one candidate. Another is Lloyds Abbey Life, the insurance group, where it already has 60 per cent of the shares. LAL rose 9p to 424p.
Lucas Industries remained in the takeover frame. It lost an early 5p gain, settling unchanged at 149p.
Allied-Lyons suffered another bear raid. Talk of a trading statement or rights issue pushed the shares 11p lower at one time. They closed little changed at 605p.
Some chunky lines of stock went through. MFI Furniture dipped 3p to 132p in active trading. A line of 2.5 million was placed at 130p by, it appeared, Smith New Court.
Morgan Crucible, the industrial materials group, rose 3p to 324p following an agency cross of about 4 million shares.
The conglomerate Tomkins, which has swallowed the Ranks Hovis McDougall food group, recovered an early fall to close 3p higher at 249p.
Its stockbroker, Barclays de Zoete Wedd, is thought to have reduced its profit expectations by pounds 9m to pounds 170m for this year and by pounds 17m to pounds 252m for next. Nomura expects pounds 262m next year.
Continuing hopes that the electricity industry is on the verge of hammering together that elusive deal with British Coal helped the generators higher, although they failed to hold their best levels. National Power rose 3.5p to 292.5p and PowerGen 5p to 294p.
Cray Electronics advanced 6.5p to 133.5p following trebled profits. Denmans Electrical spurted 50p to 275p on better- than-expected figures and Neotronics, another electrical group, responded to a 156 per cent profit advance with an 8p gain to 161p.
Resort Hotels, ahead of results, rose 4p to 36p and Rhino Group, the fledgling video games retailer, improved 3p to 27p, a two-day gain of 7.5p.
Best levels were not held yesterday. After scoring a 26-point gain the FT-SE 100 index ended 13.9 higher at 2,759.2. The FT-SE 250 index rose 11.8 to 2,888.1. Turnover reached 617.6 million shares, with 28,618 bargains completed. In light trading, government stocks were firm
The fascination for penny stocks has spilt over to Inoco, an oil- cum-property group controlled by the entrepreneurial investor David Rowland. The shares yesterday reached 10p, their highest for two years. Mr Rowland, based in Monaco, has about 70 per cent of the capital. The company has made losses topping pounds 12m in three years. Its 1992 figures are due in March.
Shares of Grosvenor Inns, with a chain of about 30 pubs in London and the Midlands, are 'significantly under-rated', the stockbroker Panmure Gordon believes. Floated last year at 105p, the shares are stuck at 90p after slipping to 73p. Interim profits were pounds 319,000. For the year profits are forecast to reach pounds 850,000 and pounds 1.1m is expected for the following year.Reuse content