London shares staged a late rally yesterday after a surge in US stocks helped to offset the impact of a surprise rise in UK inflation and soaring oil prices.

After falling 45 points earlier in the session, the FTSE 100 Index recovered to stand 22.8 points adrift at 4823.9 by the close.

Investors had retreated from the market earlier in the day after an unexpected rise in Consumer Prices Index inflation from 1.5 per cent to 1.6 per cent stoked fresh fears of interest rate hikes.

Burgeoning oil prices also weighed on sentiment, with the cost of US light crude gaining more than 50 US cents to just under $48 a barrel after forecasts of colder weather in the US.

However, US shares lifted on hopes that earnings reports this week will show the market's decline this year was excessive. Financial shares led the rally after Bank of America posted a record fourth-quarter profit.

The Dow Jones Industrial Average responded positively, lifting nearly 45 points shortly after London's close. Back in the UK, there was further gloomy property market news from the Royal Institution of Chartered Surveyors, which said house prices fell again last month.

On the corporate front, Tesco was at the top of the Footsie fallers despite announcing record Christmas sales.

The group's like-for-like sales improvement of 7.6 per cent left rivals in the shade, but was still slightly weaker than some analysts had been hoping for. Tesco lost almost three per cent, or 9.5p, to 313.75p.

Catering group Compass was the session's second worst performer after a broker note from CSFB said it was overvalued. The stock lost two per cent of its value, down 6.5p to 238.5p.

Companies exposed to high energy prices were among the fallers, with British Airways down 5.5p at 251p and steel group Corus off one per cent or 0.75p to 52.5p.

But oil groups BP and Cairn Energy were doing well, up 2p to 518p and 52p to 1144p respectively, on the back of the higher cost of crude.

However, rival Shell failed to impress with plans to hire more than 1,000 engineers to beef up the unit at the centre of its reserves crisis last year. Shares retreated 1.25p to 449p.

There was also weakness from some of the stocks to have posted strong gains in recent sessions.

Takeover talk has lifted ITV by more than ten per cent since Wednesday, but investors in the group paused for thought, leaving the shares down 0.5p at 115p.

And a clutch of miners were lower after the sector's strong gains yesterday, led by a fall of 15.5p to 914.5p for Xstrata.

In the retail sector, Boots joined Tesco on the fallers board as investors awaited the company's Christmas trading update today. Shares were 11p weaker at 659.5p.

Biggest winners were Cairn Energy, Centrica, mmO2 and Smith & Nephew.