A scintillating opening rally by Wall Street, after three days of three-figure falls in the Dow Jones Industrial Average, was the perfect remedy for an initially depressed London stock market yesterday.
FTSE 250: 4.573.6 (-15.5); FTSE SmallCap: 1,986.0 (-22.8)
Such was the power and pace of the Dow's performance that the FTSE 100 index, following hard on the heels of its US counterpart, finished well clear of the psychologically important 4,000 level, eventually closing a net 134.6 higher at 4,131.0.
That closing performance was in sharp contrast with the Footsie's earlier showing when the index initially fell away sharply, as investors and traders reacted to the Dow's dismal decline on Monday evening.
While the top 100 index finished the day in rampant form and the recently hammered Techmark 100 picked up from an earlier record low of 729.91 to close a net 13.01 firmer at 747.92, the FTSE 250 and SmallCap indices continued to flounder in the wake of persistent selling pressure, although both settled off the day's lows.
Driving US markets higher was a growing view that the recent spate of grim US economic news could be the catalyst for a reduction in US interest rates, possibly as soon as next week when the US Federal Reserve's open market committee meets to determine interest rate policy.
Many of the big investment banks have been increasingly taking the view that a rate cut of 50 basis points could come as soon as that meeting, although others retain the view that reductions will come but not until the fourth quarter.
The view among London dealers was that the worse the economy gets the more likely it will be that the US Federal Reserve will cut interest rates in the short term.
A resolute showing by many of the FTSE 100's more defensive stocks and sectors - the utilities and tobaccos - provided a much-needed cushion during the early part of the day. As the session wore on, some of the previously poorly performing issues began to stabilise and drive ahead, reinforcing the recovery trend.
Vodafone was in this category, its shares recovering from an early decline to close the 11th-best performer in the top 100. Turnover in the shares accounted for 16 per cent of overall market volume, which reached a highly respectable 2.56 billion shares. - (Financial Times Service)
