Overseas buying lifts Footsie again

FURTHER overseas buying in the wake of Tuesday's change to British interest rate management drove share prices to fresh peaks in London yesterday.

There was additional encouragement for stocks from the latest economic news, which showed industrial production and manufacturing output both down 0.1 per cent in March, compared with forecast rises of 0.6 per cent and 0.3 per cent respectively.

The numbers were viewed by market observers as lessening the chances of a further rise in British interest rates in the short term. Gilts finished the session around seven to eight ticks lower but were never pressured, according to dealers.

The buying from overseas funds was accompanied by a revival of support from some of the British investment management groups, most of which preferred to keep out of the market during the run up to the election.

But London's sparkling early performance was dampened in the early afternoon, however, when news of a stronger than forecast US labour report brought a halt to the recent surge on Wall Street, where the Dow Jones Industrial Average turned down sharply. The Dow extended an early fall to one of over 50 points within half an hour of the London close.

A 2.7 per cent rise in US non farm unit labour costs in the first quarter was seen as having inflationary implications.

The next monetary policy meeting of the Federal Reserve is on May 20th and dealers in London said Wall Street could have seen its best levels until that meeting is over.

The FTSE 100 index followed up its 63.7 point gain on Tuesday with a further 18.2 advance to a record close of 4,537.5, a two day rise of 81.9 or 1.9 per cent. In midmorning, Footsie hit a new intraday peak of 4,562.0.

The second liners and smaller capitalised issues, while by no means friendless, continued to underperform the leaders. The FTSE 250 finished 1.2 off at 4,519.0, but never looked in good form, and at its best was only 3.0 higher on the day.

The SmallCap rose 3.7 to 2,304.9, having been 4.3 higher at one point.

Dealers repeated Tuesday's story that much of the early buying interest came from overseas investors; activity from British fund managers, they said, was mainly confined to sector and stock rotation. Overall, they suggested, the market still felt very strong, given the firmness of gilts.

Financial stocks remained strong, although closing off their best levels, after the chancellor's move to allow interest rates to be set by the Bank of England. The sector has been one of the real driving forces behind the London market in recent months. Dealers insisted the "Halifax effect" was still of crucial importance.

The Halifax's conversion to banking status, involving the issue of free shares, means index tracking funds have still not lifted their weightings in what is the market's biggest sector.

Turnover at 6 p.m. was 803 million shares.