Footsie driven higher on back of US troubles

Another substantial shift in sentiment from the recently outperforming TMT stocks and into the old-economy areas of the market, provided plenty of action in London's equity market yesterday.

And while the sectoral shifts led to erratic moves in many of the market's top 100 stocks, the heavyweights, such as GlaxoSmithKline, Vodafone and BP Amoco, helped the FTSE 100 recover from initial weakness yesterday to finish in good heart.

The late rally in London took place against a rather depressing background from US markets, which followed conflicting performances from the Dow Jones Industrial Average and the Nasdaq Composite on Thursday with substantial losses at the start of US trading yesterday. Dealers said London was reacting to the continuing concerns about corporate earnings, mostly prompted by the slowdown in the US economy, which are being countered by the increasing prospect of interest rate cuts in the US and the UK.

At the close of the session, the FTSE 100 posted a 38.7 gain at 6,294.3, having fallen to a day's low of 6,223.8, down 31.8 in midmorning, before picking up in the late afternoon. The Techmark 100, burdened by the bad news affecting the TMTs, lost 36.21 to 2,780.26.

The round of interest-rate policy meetings kicks off on Tuesday when the US Federal Reserve's open market committee begins its two-day meeting to determine US rates. The general view in markets is that the Fed will follow its 50 basis points reduction made at the start of the month with a further cut, possibly by the same amount.

The US committee's meeting is followed on Thursday by the European Central Bank's Council meeting. Finally, the Bank of England's monetary policy committee meets on February 7th-8th.

The chances of a cut in UK rates were increased yesterday with news that the preliminary estimate of UK gross domestic product for the fourth quarter showed a 0.3 per cent rise, compared with a consensus forecast of 0.5 per cent.

Earlier in the week there was news that the January meeting of the monetary policy committee, after which rates were left on hold for the 11th consecutive month, was split five-four in favour of leaving rates unchanged, news which appeared to increase the possibility of an imminent cut in UK rates.

On the corporate front, Bookham Technology, one of last year's shooting stars, was responsible for the initial downturn in tech stocks. It warned of greater than expected fourth-quarter losses. That, plus confirmation that Sweden's Ericsson was pulling out of handset manufacturing, damaged sentiment right across the tech sectors.

Turnover in equities crept over the 2 billion mark.