Investors wait and wait as Fed deliberates

There was little that UK investors could do yesterday except wait. The latest decision on monetary policy from the US Federal Reserve's open market committee was not due until almost three hours after the London close.

In the circumstances, it was hardly surprising that some traders preferred to get on with their Christmas shopping or yuletide celebrations, instead of staring at their screens.

Turnover was decent for the pre-Christmas week, with 1.67 billion shares traded by the 6 p.m. count. But business is expected to slump tomorrow and Friday. But markets can be volatile in such thin trade as last year's pre-millennium rally showed.

The FTSE 100 index got off to a shaky start, dropping 47.9 to 6,198.6 in the morning, but recovering strongly in the afternoon on pre-Fed optimism. The blue chip benchmark closed 48.5 points higher at 6,295.0.

Investors are hoping that interest rates will fall in the US and the UK in 2001, allowing markets to rebound after a difficult year. At last night's close, Footsie was 9.2 per cent down on the year.

Most strategists are expecting Footsie to rally next year, with forecasts for its end-2001 level ranging from 6,600 to 7,400.

In its outlook for 2001, fund management group Invesco said yesterday it expected 3.6 per cent economic growth in the UK and a 9 per cent rise in corporate profits. It wants a 7.4 per cent total return from UK equities up until the end of May.

There was nothing in the way of domestic economic data for investors to chew on yesterday, so the main focus was on corporate news.

Banks benefited from the growing interest rate optimism and oil stocks also pushed higher after a recent trading update from Shell.

The long-awaited announcement that Diageo and Pernod had agreed to buy the drinks business of Seagram was not released until after the market closed.

The telecoms sector saw some action, with Goldman Sachs upgrading its recommendation from underweight to neutral and Energis disappointing investors by announcing plans to take a 75 per cent stake in German e-commerce group Ision. In February, such an announcement would have caused the Energis share price to rocket. In the more cynical climate of December, it prompted the shares to be the day's third worst FTSE 100 performer.

The medium and smallcap areas of the market were becalmed with the FTSE 250 gaining just 10.2 to 6,480.5 and the SmallCap falling 11.8 to 3,191.2. There were big losses for IDS and EuroTelecom shares after disappointing trading statements.