The London market's preoccupation with the potential for a further correction faded into the background yesterday after Wall Street's rally overnight and news that the authorities had left German repo rates unchanged.
Already given a big boost at the opening by those factors, London was lifted further by a sparkling opening performance by the Dow Jones Industrial Average, which raced up almost 50 points minutes after the New York market kicked off yesterday.
Such was the British market's resurgence of confidence that the FTSE 100 finished the session 79.2 or 1.6 per cent higher at 4,914.2. Other FTSE indices also made rapid progress but were left standing by the pace of the Footsie's recovery. At its best, the FTSE 100 reached 4,918.0, up 83.
The FTSE Mid-250, which has begun to make up ground on the 100 index over recent weeks, moved up 17.2 to close at 4,680.8, having hit a session high of 4,683.0, and the FTSE SmallCap 11.1 to 2.239.7, the best of the day.
London's gain was by no means exceptional when measured against rises across other European markets. Germany's DAX index was around 2.5 per cent higher and the French CAC-40 index was ahead by around 2 per cent.
Apart from the overwhelming influence from across the Atlantic, there were other bullish stories helping to drive London stocks forward.
There was a more than a vague rumour circulating in the market that a £1 billion sterling-plus bid was in the offing, and a small share buy-back by Barclays Bank took place, reviving market hopes that other, more substantial buyback operations might soon be set in train.
There was talk that BG, formerly a part of the old British Gas, might seek permission to buy in £1 billion sterling worth of its own shares when it announces its interim figures next month.
"The mini-panic over a correction seems to have subsided, for the time being at least," said one market-maker, although he cautioned that further bouts of extreme turbulence were more than likely until the summer holiday period is over.
"The institutions haven't sold any stock to speak of, and it looks increasingly as if they won't be persuaded to until the big decision-makers return from their summer breaks," he continued. "Which means that any bouts of uncertainty in the markets will be accompanied by big swings in either direction," he said.
Wall Street's big gain came as dealers forecast no shift in monetary policy by the Federal Reserve's Open Market Committee, which met to decide policy yesterday afternoon. No announcement from the Fed was forthcoming during London's hours of trading. Turnover in equities at the 6 p.m. cut-off point reached 694.9 million shares, well above Monday's pitiful 595.9 million shares but still substantially down on levels of recent months.
