EMU talk sends Footsie to new high

London's equity market shrugged aside an early bout of nervousness, gathered itself and then picked up speed to race ahead to new intra-day and closing highs yesterday, although suffering bouts of selling pressure.

Once again, it was the supposed shift in the Government's stance over monetary union, and the continuing strength of gilts, that were behind the market's dash to new peaks. And the big institutions were said to have been loathe to shift asset allocations on the final trading session of the third quarter.

There was initial help for the market from across the Atlantic, with the Dow Jones Industrial Average up 69 points on Monday. But the Dow caused some worrying moments for London when Wall Street slipped early yesterday after some profit warnings from the technology sector.

And a warning for investors came from Gartmore Investment Management, one of the big four British fund management groups, which has increased the cash element of its managed funds to 17 per cent, after speaking of "extreme conditions" in the stock market.

The FTSE 100 index ended a busy trading session 23.9 up at a closing high of 5,244.2, having hit a record intra-day peak of 5,269.2 ahead of the Wall Street opening.

The FTSE Mid-250 index also raced ahead to new intra-day and closing records, settling 13.8 up at 4,829. The SmallCap added 10.3 at 2,335.0. The all-embracing All-Share index closed at a record 2,455.02, up 10.4.

The Federal Reserve's open market committee meeting, which started yesterday, was said by dealers to have posed no real threat to markets, with analysts expecting US interest rates to be left on hold.

Commenting on reports of the Labour government's greater willingness to move towards EMU, Philip Isherwood, UK equity market strategist at Dresdner Kleinwort Benson, said: "The UK has now officially joined the 'convergence' club.

"Although the actual timing of entry will remain uncertain and much debated, the new government's commitment to Europe is beyond doubt. With the process of discounting now explicitly begun, the shift in bond yields means that our second-quarter FTSE 100 target for 1998 of between 5,500 and 5,600 could be seen this year."

Over at Merrill Lynch, the British strategy team hoisted its yearend target from 5,000 to 5,300 and that for 1998 to 5,800, to reflect falling bond yields on the EMU convergence theory.

Some dealers said the market remained "confused and not wholly convinced" about the apparent shift by the Government towards EMU, and was therefore open to some potentially violent moves. Others went along with the story.