Similar hopes also sustained United Utilities, up 9p at 573p.Shell dipped 11p to 911.5p, after touching a low of 897p, as analysts looked to trim forecasts on the back of disappointing second-quarter results in the chemicals division.But Lasmo recovered to close 2p firmer at 181p after falling in early trade on news of results at the bottom end of expectations and a warning that second-half results would be hit by higher exploration and finance charges.Hanson was in the dog-house again, dropping 4.5p to 155.75p after confirming it was to close a UK chemical plant and delay expansion plans.More activity on the buses where FirstBus, the market leader, issued an upbeat trading statement at its annual meeting The shares motored ahead 23p to 160p. The pharmaceuticals team at BZW was also said to have made positive noises. Thorn EMI continued to attract bid speculation with MCA, part of Canadian entertainment giant Seagram, tipped to go for EMI's music division. The shares rose 25p to 1,778p for a two-day gain of 71p.J Sainsbury was 6.5p better at 382p after announcing plans to buy the remaining 25 per cent of DIY operation Homebase from GIB Group for pounds 65m.Yorkshire Electricity, up 26p at 707p, joined NatWest and Thames Water on the list of recent converts to the share buy-back craze. Dealers spoke of several short positions still being squeezed after the bank spent pounds 450m buying back its own shares at 426p on Tuesday.Also in demand were HSBC Holdings, 27.5p better at 1,091p ahead of interim results on Monday; Royal Bank of Scotland, up 12p to 481p on news it is buying SBC Warburg's custody and investor services division; and Abbey National, 12.5p higher at 584p.Elsewhere in the sector Bank of Scotland gained 2.5p to 230.5p after BZW completedd the sale of the bank's stake in Standard Life.Zeneca had another healthy session, rising 27p to 1418p after announcing it had completed the sale of its textile colours business to Germany's BASF. Among blue chips, they accounted for four of the top half-dozen best performers.National Westminster Bank led the way, adding 20p to 645p on further consideration of its interims results. The Footsie took its cue and built on early gains to close 31.2 points higher at 3,734.4, just off the session's high.Banks, seen as the most rate-sensitive sector, were the biggest beneficiaries.

On Wednesday a weaker-than-expected Chicago purchasing managers' report encouraged optimism about the Federal Reserve's next meeting in three weeks. Yesterday a US national purchasing managers index showing the economy grew at a "very slow rate" in July boosted bond prices and sent Wall Street over 50 points higher in early trade. The only bigger custodians are State Street, Bank of New York and Bankers Trust of the US.The combined custody operation will employ about 1,200 people in Edinburgh, London, Jersey and Luxembourg.Although Royal Bank is paying Mercury "between pounds 5m and pounds 20m" for the custody operation, the business it is acquiring is now owned by the Custody and Investor Services Division of SBC Warburg.Mercury was controlled by Warburg until it was taken over by Swiss Bank Corporation, and the fact that the payment is to Mercury rather than SBC arises from agreements made at the time. The figures were welcome news for President Bill Clinton in election year. "This is good news for America," Mr Clinton declared at a Washington press conference. They compare with the relatively feeble 2 per cent rate of growth in GDP in the first quarter and the positively anaemic 0.3 per cent performance in the last three months of 1995.Stephen Roach, chief economist at Morgan Stanley, commented: "The big question is whether the economy is growing too fast to keep a lid on inflation and whether it forces the hand of the Federal Reserve."But any worries in the markets about a return of inflationary pressures, which would trigger higher interest rates, were tempered in the meantime by the monthly survey from the National Association of Purchasing Management showing an unexpected slowdown in manufacturing growth in July.The NAPM report encouraged the view that the economy remains under control and that the Fed would therefore hold back from raising interest rates after its policy meeting on 20 August. Consumers are more confident about the state of the economy than at any time since 1988, it reported.However, Business Strategies director David Fell said a return to the boom conditions of the late 1980s was unlikely. "The consumer will be the mainstay of economic growth in the short term but we do not expect to see an explosion of demand."Strengthening consumer demand helped manufacturing pick up for the second month running, according to the monthly survey of purchasing managers by the Chartered Institute of Purchasing and Supply. Higher output and a big jump in new orders raised the activity index for the second month running, while the survey pointed to a slight fall in the workforce.Yet prices paid for materials by manufacturers fell to a new low, signalling further declines in inflation at the factory gate and ultimately on the high street.

The prices paid on balance fell particularly sharply in the consumer sector.. There was instant celebration at the White House as fresh indicators released yesterday showed a stronger-than-expected 4.2 per cent economic growth rate in the US in the second quarter, the fastest pace in two years. Halifax is sticking to its prediction that house prices will climb 5 per cent during 1996 as a whole.The housing market recovery is going hand in hand with a revival of consumer confidence according to a survey published by consultancy Business Strategies. It published a report showing the number of jobs in manufacturing had fallen to below 4 million from 7 million in 1979.A separate report from the Construction Industry Employers' Council predicted that more than 30,000 construction jobs will be lost this year, although it said the industry's output would start to grow again next year.According to Halifax, house prices last month were 5.3 per cent higher than a year earlier, the fastest annual increase since the tail-end of the housing boom and up from 4 per cent in June.The average cost of a property rose 0.5 per cent between June and July, following a 0.4 per cent dip between May and June Nationwide is expected to report similar monthly increase.