CONFIDENCE in British shares, already buoyed by the prospect of a decisive outcome to tomorrow's general election, was given a massive shot in the arm by a rampant Wall Street yesterday.
The FTSE 100 index, which won and lost the 4,400 level during a busy morning session, burst higher in the wake of subdued US economic data, interpreted as lessening the chances of a US rate rise after the next Federal Reserve open market committee meeting.
Dealers said London looked poised to launch another tilt at its closing peak, 4,444.3, reached on March 11th. The index closed 43.5 higher at 4,433.2, well short of its all-time intra-day record of 4,466.3.
In the US, a weaker than forecast employment cost index and a fall in durable goods orders saw US bonds and the Dow Jones Industrial Average sprint ahead from the opening.
The long bond was up well over a full point minutes after the data were announced. The Dow, which posted a 44-point rise overnight, surged higher, posting a three-figure gain not long after London closed for the day.
Dealers said a further rise in US interest rates after the next meeting of the FOMC, scheduled for May 20th, might now be delayed for some months.
London's second-line stocks, which were left behind by the leaders on Monday, picked up the pace yesterday, with the FTSE Mid-250 closing 10.8 ahead at 4,507.0. But the smaller stocks again failed to attract any substantial support, leaving the SmallCap index down 2.1 at 2,293.1.
A senior market-maker at one big European securities house said the market had been caught on the wrong foot on Monday and had been unable to recover its balance thereafter. The shorts have been panicked, especially after the American news. There were a couple of attempts to shake the tree this morning, with scare stories about advance corporation tax changes after the election, but they came to nothing. The market feels very strong.
Another pointed to increasing volatility in index options as funds were said to be positioning themselves for a sharp upturn.
Mr Richard Jeffrey, at Charterhouse Tilney, cautioned that the UK market is testing all-time highs on US fundamentals, a move that might prove to be unsound". The market's early morning rise was helped by a series of small-scale buy-side programmes and some determined buying interest from the US.
US investors have been aggressive buyers of financial stocks for a couple of sessions, triggered by a four-day global banking conference being hosted by UBS Securities in New York. Senior executives of leading British banks, including HSBC, Abbey National and Lloyds TSB, have addressed the conference.
