Intense speculation that another big takeover or merger is imminent in the telecoms sector, plus more bid activity in breweries, gave a further boost to sentiment in British equities.
London's benchmark index, the FTSE 100, raced through its previous intra-day record as the bid rumours, which were mainly focused on Cable & Wireless (C&W), swirled round the market.
The index powered ahead to a record intra-day level of 6,195.6, up 94.6 on the session, but came off its best levels during the last hour of trading, eventually closing 46.0 ahead at 6,147.2.
That extended the rise over the week, which has seen an influx of overseas money into London and other European markets, to 264.6 points, or 4.5 per cent.
London was already surging ahead before the C & W speculation rose to fever pitch, with Wall Street's overnight recovery from an early sell-off prompting a fresh wave of overseas buying interest in British stocks.
Thursday's surprise 25-basis-points reduction in domestic interest rates, the fourth cut in as many months, also triggered flurries of support from the big British institutions. But some of the market's takeover euphoria tended to die down later in the session, with Cable & Wireless shares well off their best levels and many telecoms specialists adopting a sceptical view of the earlier stories that Deutsche Telekom might be preparing a bid. Nevertheless Cable & Wireless was still the best Footsie performer and Orange and Telewest were also aggressively bought.
Many dealers said the London market was looking for at least one big bid or merger in the short to medium term.
The junior FTSE indices shared in the market's surge, with the FTSE 250 advancing 29.7 to 4,976.4 to leave the midcap up 121.7 or 2.5 per cent on the week. The FTSE Smallcap index was up a further 14.2 at 2,133.8, a rise on the week of 3 per cent.
Marketmakers said they had been taken by surprise by the sudden burst of buying interest for British equities at the start of the new year and attributed much of the buying interest to the successful launch of the euro.
Turnover reached 1.06 billion shares.
