Rate cut bulls lift City equities

It is proving very difficult indeed to keep a lid on London's equity market. It gave another confident performance yesterday, shrugging aside rather lacklustre displays from Wall Street, Asia and Europe and some more disturbing domestic corporate news.

All that proved insufficient to damage the underlying optimism in London about next week's meeting of the Bank of England's monetary policy committee, which is increasingly expected to deliver a 50 basis points (0.5 of a percentage point) cut in British interest rates.

Market bulls also began to espouse the theory that a reduction in British rates might come in tandem with cuts in German and French rates and that they would in turn be followed by another reduction in US rates when the US Federal Reserve's open market committee next meets, on November 17th.

The Bundesbank council meets next Thursday to determine German interest rate policy and the Bank of France holds its regular meeting on the same day. "We might be building up to a concerted round of interest rate cuts," said one trader.

Resuming its upward path and regaining all and more of Wednesday's 37-point setback, the FTSE 100 index eventually finished 64.6 higher at 5,358.5, its best close since early September.

There was good news too for the mid and smallcap stocks which maintained the upward momentum that has seen the FTSE 250 race higher for 11 out of the past 12 sessions and the FTSE SmallCap advance for a record 13 straight days. The FTSE 250 closed 15.5 up at 4,732.9 and the FTSE SmallCap 10.5 better at 1,980.9.

Market-makers were impressed by London's ability to withstand an early flurry of bad news in the form of another depressing story in the consumer area, from Rank Group, and the water regulator's pricing review.

The news from Rank was even worse than the most pessimistic observers had expected, and coming hard on the heels of Wednesday's bad news from J Sainsbury and Whitbread, did little to bolster flagging confidence in the consumer sectors.

Ironically, Rank's own share price advanced since the steep decline in third-quarter earnings was the last straw for the departing Mr Andrew Teare, chief executive of the leisure group.

Early in the session, the water sector was crunched by the regulator's pricing review which required cuts of 1520 per cent in household water bills, a move which analysts warned could bring dividend cuts of 10 per cent to 15 per cent.

The banking and telecoms sectors provided plenty of interest. The cellular phone stocks attracting a flurry of support on the view that mobile phones will attract bumper sales this Christmas. Some of the banks were being chased as analysts prepared for a series of one-to-one meetings with bank chiefs.

Although content with the market's recent rally, always hard-to-please market-makers continued to complain about the recent downturn in turnover levels. Volume yesterday was 758.4 million shares.

News that BSkyB's bid for Manchester United had been referred to the Monopolies and Mergers Commission hardly moved the two groups' shares. The broadcaster jumped 5p to 485p, after an earlier slip, and the football club remained unchanged at 213p.

Pilkington gained 3p to 66 1/2p after reporting interim profits up 8 per cent at constant exchange rates. Good progress had been made on restructuring at the company, which would see a further 1,400 jobs lost globally. Biggest movers of the day were Reuters up 49 1/2p to 616p, Colt Telecom up 48p to 730p, Securicor up 24 1/2p to 400p, Siebe up 12p to 232p and Vodafone Group up 39 1/2p to 778p.

Largest fallers were British Airways down 21p to 417p, Railtrack down 40p to £16.20, Tomkins down 6 1/4p to 266 1/2p, AB Food down 14p to 598p and Norwich Union down 9 1/4p to 420p.