Yesterday's London trading

THE roof fell in on housebuilders as the growing prospect of higher mortgage rates sparked a bout of profit-taking.

The Bank of England kept UK interest rates on hold at 4% in April, but is widely expected to raise them by at least 0.25% next month to curb the runaway borrowing and housing boom. Building societies and banks will immediately pass the rise on to all borrowers.

Investors have also been rattled by predictions of a house price crash made by a couple of old City 'dinosaurs'.

Tony Dye, the fund manager known as 'Dr Doom', has said he expects a 30% fall in London prices over the next five years. Economist Roger Bootle forecasts a 20% fall in real terms over three years.

Barratt Developments lost 19 1/2p to 612 1/2p, Bellway 31 1/2p to 794p, Berkeley Homes 52p to 970p, Bovis Homes 18 1/4p to 576 3/4p, McCarthy & Stone 20 1/2p to 579 1/2p, Westbury 12p to 480 1/2p, Wilson Bowden 32 1/2p to 1122 1/2p and George Wimpey 10 3/4p to 440 1/4p.

Nevertheless, Arbuthnot remains overweight on housebuilders. It believes the case for a correction in house prices is getting stronger, but is not overwhelming.

The evidence so far is that the landing will be soft. London prices have been slowing for the last 18 months and - contrary to the pattern that occurred in past cycles - there is still an active market.

Indeed, the broker says the existence of an active market and the supply and demand imbalance, coupled with the ability of housebuilders to modify their product, indicate that the prospects are far from gloomy.

Put on the defensive by Wall Street's overnight fall of 134 points, which reflected fears that the Fed will raise US interest rates sooner rather than later, the Footsie traded almost 60 points down at one stage. It rallied to finish 30.4 points off at 4485.4 after Wall Street recouped a fresh decline of 58 points to trade 33 up in the early stages yesterday.

The latest consumer prices report showing US inflation rising faster than expected was seen to be lifting the stakes in terms of interest rates. Stripping out energy and food costs, core consumer prices rose 0.4% in March - the biggest increase since 2001.

Dealers now believe the Fed will raise rates in the summer and not wait until after the Presidential elections in November.

Sterling eased to $1.7907, while the euro improved to 66.7p and $1.1945.

Marks & Spencer provided the biggest talking point, falling 12 1/2p to 264p on dreadful fourth-quarter sales figures. Other retailers eased in sympathy, with Alexon 14p down at 310 1/2p, French Connection 7p lower at 470p and Mothercare 6p off at 322 1/2p.

Continuing rumours of a possible bid from consumer goods giant Reckitt Benckiser helped Dr-Scholl's-sandals-to-Durex-condoms group SSL International advance 4p to 314p.

A Merrill Lynch recommendation and target price of 120p lifted oil and gas exploration company Paladin Resources 3 1/4p to 111p. Cairn Energy also responded to a Merrill tip with a 2p gain to 890p. It has lifted its target price to 1050p from 870p.

Dearer money fears left property groups Land Securities 42p off at 1086p, British Land 23 1/2p lower at 628p, Hammerson 43p down at 664p and St Modwen 14 3/4p easier at 312 3/4p.

Steel giant Corus softened 2 1/4p to 41p despite news that Russian investor Alisher Usmanov has increased his stake to 13.39%.

Aim-quoted Corpora, the knowledge management software group, jumped 3p to 42 1/2p after winning two new contracts in the UK for its Jump! and eXero products from BioWisdom.

Dealers will be keeping a close eye on RII, unchanged at 3 1/2p. Chartered accountant Peter Bullen has acquired a 29.5% stake in the clean cash shell following a placing. Word is that a quoted company could soon be reversed into it and off we go.

Placed on Aim at 200p, shares of NETeller, an Isle of Man-based operator of an online money transfer service, touched 20 1/2p and closed at 197p, a discount of 3p.

Gatwick-based charter specialist Air Partner advanced 11p to 446p following more than doubled interim profits of £1.2m. The rise was due to growth in margins and tighter cost controls. Overheads were cut by 5% during the year.