Positive economic data restore City sentiment

Wall Street's powerful rally on Tuesday and again yesterday, some slightly encouraging domestic economic news and another strong rally in banking shares helped fuel an excellent performance by London's equity market. All the main FTSE indices made progress, recouping much of the ground lost on Tuesday when the market was beset by worries about the prospect of rising US and British interest rates.

Although the interest rate stories refused to die down, the latest economic evidence provided a measure of comfort for those fearing the more extreme scenarios for British interest rates.

British retail sales in December showed a rise of 0.6 per cent, against a consensus forecast of 0.7 per cent, and the minutes of the January 13th meeting of the Bank of England's monetary policy committee (MPC) also allayed some of the market's worst fears.

The vote was eight-to-one in favour of a 25-basis points increase with Mr Willem Buiter, a noted hawk, the only member to vote for a 50-basis points increase.

The market view generally remained, however, that another increase in British interest rates, of 25 basis points, could not be ruled out after the next MPC meeting, scheduled for February 9th and 10th.

Wall Street provided the initial upside impetus for London, with the Dow Jones Industrial Average surprising most observers when it turned an early 124-point fall into a closing gain of 24 points on Tuesday and the Nasdaq finished at a session high, stimulated by good earnings news.

And with the MPC minutes and retail sales news adding to the relief factor, the FTSE 100 index was quickly into its stride, accelerating smoothly as the session wore on.

Sentiment was given an additional lift as Wall Street bounded ahead to post another three-figure rise before dipping off after London had closed for the day. However, the US market was braced for news of a speech by Federal Reserve chairman Mr Alan Greenspan to the Senate Banking Committee.

The outcome of all that positive news was a 101.5-point jump in the FTSE 100 index to 6,375.6, after a day's best of 6,380.0. The other FTSE indices also made rapid progress, but the 250, although closing up 39.7 at 6,317.6, finished well below its best of the day, 6,335.6, up 57.7. The FTSE SmallCap settled only just below its session best, closing a net 13.9 firmer at 3,194.5, after 3,195.8.

While the prospect of rising interest rates has unsettled many traders, a salesman at one of the big US investment banks insisted that he remained quietly confident that the market would continue to prosper as more big bids and initial public offerings continue to excite investors. Turnover in equities was 1.9 billion shares by the 6 p.m. count.