Long-awaited rally lifts shares across the board

It was a long time coming, but the rally in London's recently beleaguered equity market finally arrived yesterday, driving share prices higher across the board. Seven consecutive sessions of often hefty losses is an unusual occurrence, even in today's volatile markets, and must have shaken the nerves of even the most ardent market bulls.

The FTSE 250, meanwhile, rushed up to 6,965.0 while the FTSE SmallCap rose 14.2 at 3,575.6, a point off its best of the day. The Techmark 100 gained 3,993.41, after breaking back through the 4,000 at one point to touch 4,027.25.

There were various potent reasons behind the market's rally, most notably the apparent ending of the blockade of petrol tankers across the UK, although it remained unclear whether the end had extended across the country. And the huge disruption to the economy in recent days and its effects in the near future continued to worry some observers.

Helping to drive the market better was a big "buy" programme trade, encompassing many European markets but mostly concentrated in FTSE 100 stocks and said by some to have been worth as much as €1 billion. The trade, exceptionally large by stock market standards, was said to have been executed by Dresdner Kleinwort Benson.

Marketmakers said they were bracing themselves for a big session today, involving the dual expiry of index options and the FTSE September future, plus similar dual expiries in Germany and the US. The big shifts in constituents in various indices, compiled by Stoxx, the pan-European compiler, on a free-float basis, plus other moves, will have a substantial impact. Changes to the FTSE indices will also take effect on Monday.

Dual expiries have in the past triggered big swings in the FTSE 100. "It could be a very hot day in the market," said one trader.

Other boosts to sentiment came from a buoyant gilts market where big gains stemmed from the publication of the government's consultation paper on the Minimum Funding Requirement. Gilts had been under pressure ahead of the paper.

The latest domestic economic news caused one or two brief flutters in the market. A 0.6 per cent increase in retail sales last month was twice the rise expected by most economists. But closer scrutiny of the report showed the value of sales had fallen, thereby adding to the recent flurry of encouraging economic data.

Underlying inflation fell to 1.9 per cent in August, the lowest figure since inflation started to be calculated, while average earnings rose by less than the consensus forecast. Those numbers are being interpreted as making it difficult for the Bank of England's monetary policy committee to lift UK interest rates when it meets on October 4th-5th.

Turnover was 1.9 billion shares.