Hopes for lower interest rates on both sides of the Atlantic kept City shares on the right track today, as the FTSE firmed in thin volume.

The FTSE 100 index closed 64 points higher at 5358, just shy of its lunchtime high.

Solid hopes for a UK rate cut next week and the prospect of a firmer Wall Street opening, helped the FTSE 100 climb.

However, strategists noted the lack of volume, which exaggerated share price movements. Provisional market volume was 674m shares traded.

"We seem to be just sitting here. People don't know which way the market is going to jump so they are doing nothing," commented one domestic trader.

Wall Street was a positive influence on the Footsie. After an uncertain start in New York. Sentiment remained intact, despite stronger-than-expected wage inflation data for the third quarter.

Economists said current jitters about deflationary pressures, means the Fed is unlikely to be swayed from their rate cutting programme.

Water stocks were centre of attention following a tighter-than-expected review from industry regulator Ian Byatt. He called for a 15% to 20% cut in the average household water bill, when many thought he would demand a 10% reduction.

Hyder shares slid 5%, Anglian Water lost 3% and Yorkshire Water finished down 2%.

Telecom issues provided some solidity to the market, coming back from some underperformance, dealers said. COLT Telecom soared 7%, Cellnet stakeholder Securicor was up 6.5% and Vodafone put on 5.4%.

News that BSkyB's proposed takeover of Manchester United has been reffered to the Monopolies and Mergers Commission, failed to spook investors, who had expected the decision. Manchester United shares were unchanged at 213p, while BSkyB added 5p to 485p.

Warnings from rail regulator Opraf about the poor performance of national rail services took its toll on Railtrack, meanwhile, as shares in the infrastructure operator fell 2.4%.