A sparkling performance by gilts provided the perfect platform for UK equities to build on the good gains recorded over Christmas and the New Year.
Sentiment was given a further shot in the arm by a strong opening on Wall Street, where the Dow Jones Industrial Average posted an early 40-point gain. It was helped by positive remarks on the Asian crisis, US inflation and the economy from Mr Robert Rubin, the US Treasury Secretary.
The big gains in gilts came after a strong performance by international bonds - where the yield on the US long bond fell to its lowest level since 30-year bonds started to be regularly issued in 1977 - and evidence from no less than three leading forecasters of a sharp slowdown in UK economic growth this year.
Adding substance to those forecasts was a benign UK Purchasing Managers` report for November.
The report, plus the economic forecasts, were viewed as reducing the chances of the monetary policy committee recommending an increase in UK interest rates after its regular meeting. The committee's decision will be announced on Thursday.
Equities drew further comfort from the appearance of another stock buy-back, one of the factors behind the market's strength over the past year.
Legal & General, the insurer, became the first FTSE 100 constituent to buy in its own stock this year, announcing the repurchase of convertible bonds.
The FTSE 100 index ended a busy session 69.0 up at 5,262.5, its fifth straight gain since trading recommenced after the Christmas holiday.
During that period the index has climbed 251.6, or 5 per cent, driven by big gains on Wall Street, increasing optimism over the potential for more takeover bids as well as share buy-backs and special dividends. The index is now only 68.3 below its previous closing high and 104.8 below its all-time intra-day record.
Wall Street's excellent showing last Friday, when the Dow rose 56 points, was offset by another jittery performance from the two biggest Asian markets, Hong Kong and Tokyo. They fell 3.5 per cent and 2 per cent yesterday. Asian stock markets generally behaved well over the holiday period, although dealers remained extremely wary about the potential for further collapses in confidence across the region.
Buying was not confined to the leaders. Second-liners made good progress, with the FTSE 250 finishing 20.4 firmer at 4,828.7, and the FTSE SmallCap moving up 8.3 to 2,328.5.
