Good news on the US economy turned a difficult morning into a buoyant afternoon for the UK market, with the FTSE 100 index mounting a run at the 6,000 level.

Early, on, shares struggled to make progress. Further signs of the weakness of the UK economy came when first-quarter gross domestic product grew just 0.3 per cent, weaker than expected. The mood changed decisively when US first-quarter gross domestic product figures were released at 1.30 p.m. London time. The figures, which showed annualised growth of 2 per cent, were much stronger than the market expected and caused an instant leap in share prices as investors took the view that the US had avoided recession.

Footsie, which had spent much of the morning in negative territory, surged to a 77 point gain just after the Wall Street opening. Although the Michigan consumer sentiment figures had much more negative implications for the US economy, they did little to shake the market's confidence. Nor did the inflation component of the GDP numbers which showed prices rising at 3.3 per cent. Footsie enjoyed another surge in mid-afternoon, carrying the index up to 5,976.9 at its best of the day. But a modest retreat around the close left the index with an 83.1 point gain at 5,951.4.

Forecasts for UK corporate earnings growth this year continue to be robust despite the economic slowdown. "Earnings projections are unduly optimistic," says the strategy team at UBS Warburg. "Over the period since 1995, growth in nominal earnings has averaged around 8 per cent per annum. Within this, growth in financials has averaged 13 per cent per annum, while growth in non-financials, excluding resources thereby removing the effects of changes in oil prices, has averaged 5 per cent per annum.

"At roughly 20 times forecast 2001 earnings, we believe UK equity valuations largely reflect the effects of low inflation. Although further retreating is possible, growth in earnings and dividends is likely to account for a much higher proportion of total equity earnings over the next few years than has been the case recently, when equity returns have been driven primarily by falling bond yields. They are likely to average less than 10 per cent per annum over the next few years."