Footsie makes solid comeback

THE equity market's confidence, badly dented in recent sessions by worries about next week's budget.

The possibility of another rate rise, and Wall Street's 192 point slide on Monday, recovered strongly yesterday.

Wall Street's stunning overnight rally, which saw the Dow Jones industrial Average recoup much of the previous day's loss it rose 153.8 was the prime motivation behind London's performance. The US market's rather erratic performance yesterday - it opened slightly lower and slipped away before embarking on a strong run and then coming oft again as London closed - had only a minor impact on UK trading.

But there was also a growing feeling around the marketplace that the heavy losses in UK shares since the stories of the abolition of the 20 per cent tax credit on dividend payments first impacted may have been overdone.

Some market observers are increasingly taking the view that the new Chancellor of the Exchequer might reduce the tax credit in a series of steps, of possibly five percentage points a year. This, it was pointed out, could mean that the market had already factored in the first year's reduction.

A firm showing by gilts, which recovered after a slow opening, also helped to galvanise share prices. The auction of £2 billion sterling of 10 year gilts was deemed satisfactory and covered 2.7 times. Two sets of trade figures, total trade for April and non EU trade data for May, came in slightly worse than expected, but had little impact of sentiment, dealers said.

Another strong bull point for stocks was the continuing takeover buzz in the banks and insurance stocks, which showed no signs of abating. Bid stories hummed across the sector, encompassing Abbey National and Bank of Scotland among others. News that Mr Tan Sri Khoo Teck Puat had taken his longstanding stake in Standard Chartered above the 15 per cent mark saw the latter's shares build on recent strength.

The FTSE 100 index made rapid progress after an initial opening burst of strength and eventually finished the day a net 43.7 higher at 4,640.0. Over the past two days the index has recouped 64.2, or 1.4 per cent.

The concentration of activity in the leaders meant that the secondliners and smaller stocks once again took a back seat, substantially under performing the front line stocks. Both managed small gains, however. The FTSE 250 moved up 6.2 to 4,453.5 and the FTSE SmallCap 3.8 to 2,238.2.

Wall Street's big gains imparted substantial strength to all the market's US favourites, which included the oil stocks. They were also helped by a feeling that all the bad news in the sector is already in the prices. Drug stocks, keenly sought by American funds, also made good progress.