The London stock market shrugged off last week's interest rate rise and any signs of inflation in the latest economic data. Instead, it took its cue from New York where on Friday the Dow Jones Industrial Average proved indifferent to the inflationary implications of strong employment figures to move back above 9,000.
The FTSE 100 index moved forward smartly from the beginning and was trading more than 60 points higher after the first hour.
It disregarded producer prices data for May, which showed that the prices of goods and raw materials coming into factories were marginally higher compared with expectations of a slight fall.
Then it received another leg-up after Wall Street opened. The Dow was lifted by news that Wells Fargo and Norwest are merging and Footsie finished 90.5 points higher at 6,037.8.
At that level, it is within easy striking distance of the closing peak of 6,105.8 achieved in early April.
And the overall market did reach a record high. The FTSE All-Share index ended the day 35.30 higher at 2,868.10, more than 20 points above the previous peak on April 6th.
The surge was not, however, backed by significant turnover. Final volume of 874.6 million shares by the 6 p.m. cut-off point suggested the gains were based more on technical price rises than a genuine return of buying.
Additionally, the latest monthly investment survey from Merrill Lynch showed that, while funds continued to be enthusiastic buyers of UK government bonds and were still positive on continental equities, they were neutral on British shares.
The survey, published yesterday, pointed out that UK fund managers had, instead, become aggressive buyers of overseas bonds, probably focusing on US Treasuries.
That preference for gilts over equities reflects the view of the UK economy. Fund managers forecast that gross domestic product growth in Britain would slow to 1.8 per cent in 1999 and headline inflation would ease to 2.8 per cent next year from 4 per cent now.
On the other hand, says Credit Suisse First Boston, institutional cash holdings are still "abnormally high given the low interest rate environment that prevails" even though they have come down from 6 per cent in the first quarter to 5.5 per cent.
If there was fundamental support for the market, it was in pharmaceuticals stocks. Last week's news that Astra of Sweden is getting out of its joint venture with Merck has been interpreted as clearing the way for a strategic move.
The second-line FTSE 250 index rose 25.7 to 5,960.3, helped by continuing enthusiasm for a Mirror bid and the latest activity in the brewing sector, where Vaux has announced an approach. The SmallCap closed 7.3 higher at 2,782.7.
The general strength across the market indicated that investors were taking the view that last week's rise in interest rates was merely a spike.
There was no obvious shift into more domestic issues and no flight into defensives, although some of the pharmaceuticals' gains might have had a defensive tint.
