Market report: Monday close

STOCK market traders were treading warily today as a new computerised trading system designed to improve liquidity among secondliners came into play.

The new apparatus is known as SETSmm (Sets Trading with Market-Makers) and is effectively a hybrid version of the current automated trading system Sets, which was introduced in 1997 and matches buyers with sellers on electronic trading screens.

The added advantage of SETSmm is that it uses marketmakers to provide extra liquidity between buyers and sellers by offering continuous bid and offer prices. This, in turn, is expected to result in less volatility in price movements as often witnessed on the big board.

The SETSmm systems will cover about 198 mid-cap companies not already enjoying a quote on Sets, which is usually focused on the top 100 companies and some of the bigger second-liners. It will also offer automated execution services and opening and closing auctions.

The London Stock Exchange says a total of 31 market-makers have signed up to the new system, including ABN Amro and Merrill Lynch.

Dealers say mid-cap companies are popular with private investors because the sector contains a lot of technology companies. The FTSE 250 index has risen 20% since the start of the year, outperforming the FTSE 100. Today it rose 43.8 points to 5,768.2.

Traders complained of marketmakers reducing their normal market size in a number of stocks, leading to the spread between bid and offer widening considerably.

Share prices generally made a strong start to the week. The FTSE 100 finsihed up 45.0 points at 4333.4. It was supported by opening gains for the Dow this afternoon and a sharp rise in Britain's biggest company, HSBC. The banking giant was one of the best performers among leading shares jumping 28 1/2p to 913 1/2p where it is capitalised at £99.3bn.

UBS has lifted its 12-month target from 950p to 1050p and says profitability remains robust, supported by economic growth in both Hong Kong and the US. Earnings are also expected to be boosted by recent acquisitions, including last week's $1.3bn (£769m) deal to buy Bank of Bermuda.

Elsewhere in the banking sector, Royal Bank of Scotland fell 33p to 1546p on the back of claims suggesting it is considering a £4.5bn offer for Sovereign Bancorp of Philadelphia. Broker WestLB has repeated its outperform rating on RBS, arguing that a bid for Sovereign would make sense.

Cigarette maker Gallaher, up 9p at 599p, has teamed up with Shanghai Tobacco to distribute each other's products in China and Russia. Shanghai Tobacco will start making and distributing Gallaher's Memphis brand in China within six months.

Sugar producer Tate & Lyle rose 10 1/4p to 318 1/2p, despite US securities house Smith Barney raising its recommendation from sell to hold ahead of interim results on Thursday.

Rok Property Solutions rose 7 1/2p to 250p after withdrawing its offer for construction group Galliford Try, down 4 1/4p at 41 1/4p. It complained that Galliford had rejected revised terms of 54p a share and refused to cooperate over due diligence.

Kinta Kellas touched 6p before rebounding to trade 1/2p higher at 13p - all without a share changing hands.