The first clear signs of a recovery in the US economy helped the FTSE 100 index end the session with a solid gain although the rally took time to get going.
The US purchasing managers' index for August jumped to 47.9 from 43.6 in July, a much stronger result than the markets had been expecting. Both the new orders and manufacturing production figures were above the crucial 50 level, indicating expansion in those areas.
After some confusing data in recent weeks, the figures were seen as a sign that US manufacturing has turned the corner and that the interest rate cutting policy of the Federal Reserve was finally having an effect. The Dow Jones Industrial Average surged back above the 10,000 level in early trading.
But although the London market did respond to the US news, there was clearly an element of caution. The FTSE 100 index was up only 20 points for a while after the US news before a late surge took the blue chip benchmark to a close of 5,379.6, up 67.5. But the rally was fairly narrow, with the FTSE 250 gaining just 8.4 to 6,091.1 and the SmallCap only 0.1 to 2,686.8.
"Investors may be waiting for Friday's US employment data to confirm the recovery," said Mr Bob Semple, equity strategist at Deutsche Bank. "It didn't help that the UK purchasing managers' index fell on Monday." Earlier in the day, the grim news at Marconi did little for sentiment. The telecoms equipment group, which was once a stalwart of the UK market, announced a second profit warning, further job losses and the departure of its chairman and chief executive.
A poor trading outlook from Ericsson of Sweden also cast a pall over the market as the Swedish telecoms equipment group said it saw no clear signs of a recovery.
The afternoon rally was led by the TMTs (technology, media and telecom stocks) which provided the seven best performers in Footsie, including Energis and Colt Telecom, which both made double-digit gains.
Vodafone surged 6.5 per cent in heavy trade. The Techmark 100 jumped 26.08 to 1,469.33, ending its sequence of record lows.
