Markets rally but rate fears persist: Hedge fund rumours rattle markets Soros fund says it lost dollars 600m Home loan offers withdrawn

UK BOND and share prices rallied modestly yesterday but sentiment remained rattled by worries over rising US rates and widespread rumours that some big speculators, known as hedge funds, were in financial trouble.

The FT-SE 100 index of leading UK shares climbed 13.7 points to close at 3,281.2, while UK gilts finished nearly half a point higher. Continental European bonds sank in late trade but US Treasury bonds staged a nervous recovery.

The Quantum Fund, controlled by Hungarian-born speculator George Soros, yesterday admitted it lost dollars 600m on 14 February in a 'Valentine's Day Massacre' prompted by a surge in the yen after the breakdown of US-Japan trade talks.

Some analysts questioned whether the current upheaval in bond and share markets was a result of speculation rather than concern about rising US rates.

However, fears of rising US inflation pressures have yet to be mirrored in Europe and the UK where, despite market concern, analysts predict continued falls in rates and ebbing inflation.

The market turmoil has had a knock-on effect on mortgage providers, with several lenders withdrawing offers of long-term fixed rate loans and most waiting until next week to decide on new rates.

Britain's visible trade deficit outside the European Union widened to pounds 758m last month, from pounds 671m in December.

The trade deficit has been stable for some months, with rising export prices compensating for a fall in the physical quantity of British goods sold abroad.

Export prices in the three months to January were 3 per cent higher than in the previous three months while export volumes were 0.5 per cent down on the previous three months.