Markets regain nerve on rates

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THE CHANCELLOR and the Governor of the Bank of England met yesterday afternoon to discuss interest rate policy. But the markets' nervousness about a pre- emptive rise in rates in the near future eased nonetheless.

Speculation about an imminent rate increase subsided during the afternoon, with gilts prices ending the day only slightly lower. The FT-SE index of 100 leading London shares closed 13.6 points up at 3,095.9, helped by the reaction of water shares to the announcement of new price limits.

Fears of a rate rise were calmed by the Treasury's monthly monetary report, which pointed out that rising raw material costs had yet to feed through to factory gate prices.

Annual growth of 6.1 per cent in the amount of cash circulating in the economy in the year to last week also suggested that growth in the narrow measure of the money supply would ease.

The British Bankers' Association announced that the main British banks lent pounds 1.745bn in mortgage finance last month, giving a net figure after repayments of pounds 888m. The monthly figures have not been running long enough to disentangle seasonal patterns.

US Treasury bonds strengthened slightly following figures showing an unexpectedly small number of new unemployment benefit claimants. The dollar rose, pushing above 100 yen for the first time since 27 June. At New York closing the dollar was at 100.05, up from 98.55 the previous day.