The other main European markets were mixed, with Europe's number two in Frankfurt posting modest losses at the start of trade. In London, however, dealers' trading terminals flashed "buy" notes.

The FT-SE 100 index of leading shares surged 1.2 per cent higher in early trading to a record 6,493.3 points. The index fell back minutes later, to show a gain of 6 4.8 points at 6,480.1 points.

In Frankfurt, the X-DAX index opened 0.51 per cent lower at 4,996.67 points. Meanwhile, the Paris market followed London higher. The CAC 40 index was showing a gain of O.08 per cent mid-morning at 4,307.88 points.

London dealers said that the market hoped that the Bank of England would shave a quarter point off the British base rate after its regular monetary policy meeting on Thursday to 5.25 per cent. A fallin British manufactured output in February came as the latest sign of weakness of the slowing British economy. Cheaper money often spikes share prices higher because the benefits of stashing cash decline.

The market was also supported by rumours of merger activity in the high-growth Telecoms sector. And a surge on Asian markets overnight came as the icing on the cake for the city traders.

The European central bank will also make its latest monetary policy decision public on Thursday. Barclays bank stock rose by 50 pence to 1,930 pence, Halifax stock gained 22 pence to 823.5 pence.