Footsie returns above 6,000 but fears mount of interest rate hike

FTSE: 6,056.43 (+70.73) Mid-250: 11,830.32 (+88.81) Small Cap: 3,302.49 (+8.83):A TREND for strong corporate news flow allowed London equities to turn around from three sessions of losses yesterday, helping the FTSE 100 back above 6,000 points.

But news of the strongest monthly advance in the consumer price index (CPI) took the index off session highs of 6,060.75, adding to the prospect of an interest rate rise.

The CPI data – showing a 1 per cent monthly increase to 3.7 per cent, an eight-month high and nearly double its government-mandated target of 2 per cent – offered fresh insight into the extent of the dilemma faced by the Bank of England, as it seeks to protect nascent economic growth at the same time as controlling inflation.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “The December consumer price inflation data are horrible.

“Despite the undeniably significant risk to growth coming from the fiscal tightening that is now increasingly kicking in, there is mounting pressure on the Bank of England to enact at least a token near-term interest rate hike to send out the message that it has not taken its eye off the inflation ball.”

But traders remained confident that the FTSE 100’s renewed energy, for the time being at least, would remain.

Seán Power, equity analyst at City Index, said: “A strong move this morning to the 6,050 level will need to be consolidated if we are to push on further this afternoon.

“As it stands this rally looks like it has strength and maybe this is now the time that 6,050 becomes support and not resistance.”

Overall, the FTSE 100 rose 71 points to 6,056.43, a gain of 1.2 per cent coming after a dip of 16 points over the previous session.

Burberry, the fashion house, was the best-performing stock on the index rose 5.3 per cent to £11.15. SABMiller rose 1.7 per cent to £22.09 after reporting a 3 per cent rise in third-quarter lager volume. Australian mining group Rio Tinto climbed 1.5 per cent to £44.50 but the company also said it was too early to provide an estimate of the full impact of the Queensland floods on its operations in the region.

Housebuilder Taylor Wimpey was up 8.4 per cent to 38.4p after receiving several bid approaches for its US operations. – Copyright The Financial Times Limited 2011