The London equity market's bears were routed on most fronts yesterday with a major bid story whetting the appetites of the bulls and economic news from across the Atlantic going some way to demolishing the case for a rise in US interest rates in the short term.
Fears of a US rate rise, never looked like hitting the bullish sentiment in the market's second-liners and smallcap stocks whose indices both moved up to intra-day and closing records.
Marketmakers, many of whom have been jobbing off downside trading books in recent sessions, were initially wrong-footed by the news of a bid approach for EMI, confirming long running takeover speculation in London. However, they were subsequently persuaded to shift to bullish stances as the economic news from the US filtered into the market.
The combination of the revival of takeover speculation and the decreasing chances of a rate rise in the US saw the Footsie close 95.2 higher at 5,928.3. At its best, not long after Wall Street's economic news had been announced, the FTSE 100 posted a 121.8 gain at 5,954.9.
Unlike the FTSE 100 index, which endured another uncomfortable morning session as those interest rate fears continued to play on the minds of fund managers and institutional investors, second-line stocks and smallcaps remained firmly on the uptick, with the FTSE 250 index never troubled on the downside and finishing the day a net 41.9 up at a closing record of 5,610.9.
At its best, just before the close of trading, the 250 hit an intra-day record of 5,615.0. The FTSE SmallCap moved up to a closing and intra-day high of 2,645.9, up 12.1 on the day.
"We were certainly wrong-footed by the EMI story and the news from the US was weaker than expected," said one of the more cautious marketmakers in London.
But he said there were continuing bearish tendencies in London. The economic news from America triggered a significant upsurge on Wall Street where the Dow Jones Industrial Average jumped more than 170 points during London trading, transforming the initial trend in UK equities.
The crucial US data affecting London was the employment cost index for the first quarter which, at plus 0.7 per cent, was well below the consensus estimate of plus 1 per cent, a figure viewed as possibly unsettling the Federal Reserve's open market committee next month.
Other US data, including first-quarter gross domestic product up 4.2 per cent year-on-year, and weekly jobless claims of 1,000 were not viewed as too damaging.
Equity turnover at 6 p.m. showed a small increase on activity levels earlier in the week, reaching 925.3 million shares.
The bid approach to EMI, hardly a secret as the shares have raced higher in recent sessions, accounted for almost five Footsie points. On a day of several massive gains, insurance merger partners General Accident and Commercial Union both ended in the top four after announcing impressive first quarter growth.
CU gained 82p to £11.19 and GA soared up 88p to £14.06, indicating, as one City wag has put it, that the merger will be no Commercial Accident.
Most financials did well, with notable risers including Bank of Scotland up 37p to 735p, Schroders up 143p to £29.33 and the Prudential up 30p to 847p.
News that PacifiCorp had dropped out of the race with Texas Utilities for The Energy Group disappointed TEG's shareholders, who had hoped for a further round of bid rises. The group slumped 26 1/2p to 838 1/2p.
Elsewhere, pharmaceuticals wrestled free of recent falls, with SmithKline Beecham improving 25 1/2p to 713p, Glaxo Wellcome increasing 49p to £16.90, while Zeneca took a 124p lead to £25.76.
Water industry watchdog Ofwat called for limits on spending by water companies and greater efficiency improvements.
