The price of silver rose to its highest level in nearly a decade yesterday, closing at $7.05 an ounce on the spot market in London - a level not attained sine July 1988. The price rise came a day after US investor, Mr Warren Buffett said his company had bought nearly 130 million ounces of the metal, or about 20 per cent of annual world supply.

"The news answers most of the questions we have had about the silver market in the past few months, but with Warren Buffett behind it now, there may be follow-through buying which will drive prices higher still," said Mr Carlos Perez-Santalla, a trader with Hudson River Futures.

Silver for March delivery jumped 17.5 cents to $6.79 an ounce in morning trading on the Commodity Exchange, a division of the New York Mercantile Exchange. Silver prices have risen about 13 per cent in the past four days and about 60 per cent since mid-1997, when Mr Buffett started buying.

The widely followed Nebraska investor, who rarely discloses his investment strategies, said his company, Berkshire Hathaway Inc, made the statement "because of recent price movements in the silver market and because Berkshire Hathaway has received inquiries about its ownership of the metal". Mr Buffett said he had taken delivery of 87.5 million ounces of silver and agreed to buy another 42.2 million ounces for delivery by March 6th.

But he said he would be willing to defer delivery for a reasonable time on payment of a "modest fee" if any seller should have trouble making delivery. The news came after a trader filed suit in federal court last week against Phibro Inc, alleging the commodities trading firm had tried to manipulate the silver market.

Phibro denied the allegations and the Mercantile Exchange said there was "absolutely no basis" for them. Phibro is owned by Travelers Group, in which Mr Buffett owns a big stake.

Yesterday some analysts warned demand was crumbling and that the rally may collapse.