Spurred on by the record-breaking 257-point rise in the Dow Jones Industrial Average and a 7 per cent leap in Hong Kong's Hang Seng Index, London's equity market made good progress for the third consecutive session yesterday. The FTSE 100 index regained and then lost the 5,000 level, getting to within 68 points of its all-time intra-day high, reached on August 7th. But it finished a relatively busy session well off the day's high of 5.027.3, at 4,976.9, up 24.7. In the afternoon, Wall Street opened on a subdued note, with dealers aware of the potential for another sell-off when the US August non-farm payroll report is published tomorrow.
Since the start of the week, Footsie has risen 159.4, or 3.3 per cent.
The extent of Wall Street's overnight surge, a record in points terms, but still well below the record 10 per cent one-day rise a day after the crash of October 1987, surprised even the super-optimists.
It was triggered by relief over the rally in far eastern markets after their big losses in preceding days and also by a subdued US purchasing managers' report for August, which reduces the pressure for a rate rise. The Federal Reserve's Open Market Committee meets to consider monetary policy on September 30th.
Second-line stocks also finished well below their best levels of the day. The FTSE Mid 250 ended 13.3 ahead at 4,646.5, having given up half its earlier gain, which saw the index up 26.7 at its highest for the day shortly after trading commenced.
Smaller capitalised stocks, which have been left behind over the past couple of days, began to catch up on their senior brethren. The FTSE SmallCap index closed 7.5 firmer at 2,257.5, 0.2 off its session high.
NatWest Securities points out that the run-up in Footsie came to an abrupt halt in August, with that index posting its poorest total return since May last year, of minus 1.3 per cent. The broker said that, for the first month since February, it was the mid to smaller end of the market spectrum that led the way, with the FTSE 250 and SmallCap indices producing returns of 2.6 per cent.
UK shares galloped ahead at the outset, with buyers stimulated not only by the gains on Wall Street and in the Far East markets, but also by a fresh burst of takeover speculation.
Banks and insurance stocks, substantial out-performers for many months, attracted renewed support on hints that a big round of consolidation is due.
The far eastern-linked banks, however, suffered a mid-morning bout of rvousness which saw Standard Chartered relinquish its initial strong gains amid talk of influential brokers turning bearish on the stock.
The big winners in the leaders were stocks with exposure to the British pound, as sterling fell away against both the dollar and the deutschmark. Turnover in equities continued to creep up, reaching 770.9 million shares by 6 p.m.
