Stocks surge on US rate rise as dollar gains on euro

International stock markets have surged on hopes the US Federal Reserve's small interest rate rise could be the last for a while, but the euro has plunged again against the dollar, falling to almost $1.02.

All the main European markets rose strongly and the US market gained further ground last night. The new buoyancy in the markets provides a good backdrop to next week's flotation of Telecom Eireann shares. If it continues, it will make it easier for the Government and its advisers, as a healthy early rise in the price after flotation would be more likely.

Yesterday London's FTSE 100 ended up 2.7 per cent, its biggest points rise since January 18th, and Germany's DAX gained 1.9 per cent. Paris's CAC-40 index closed at a new high of 4,609.26, up 1.6 per cent.

In Dublin, the ISEQ index of Irish shares added 2.2 per cent, encouraged by the strong international mood. Dealers in Dublin said the market was also helped by new money flowing into stocks on the first day of the new quarter, with the two big bank stocks rising strongly.

Last night, the US market gained ground again, building on Thursday's gains and the Dow Jones index closed 99.62 points higher at just over 11,066, a gain of 0.87 per cent on the day. June employment data will provide today's focus on Wall Street.

The markets celebrated the Federal Reserve decision to raise rates 0.25 of a percentage point as expected and switch its monetary policy bias to "neutral" from "tightening", suggesting it feels current low inflation levels do not warrant a series of rate hikes.

But economists warn further rate rises from the Fed cannot be ruled out. A stronger-than-expected purchasing managers' index yesterday underlined the strength of the US economy.

The dollar was strong again, mainly due to continued confidence about the outlook for the US economy. It rose to $1.0201 against the euro after the European Central Bank left rates unchanged. It was trading at $1.0220 in New York last night.

Analysts said that yesterday's euro fall was partly due to technical factors.

"The euro has been skittish in recent days because of what's happening in the US with interest rates, but what really sparked yesterday's down move was sales of Swiss francs with which the euro is closely linked," said Mr Aziz McMahon of Ulster Bank Group Treasury.

However, he believes the euro may have hit bottom with signs that economic fundamentals in Europe are showing signs of improvement. But Mr Dermot O'Brien, economist at NCB Stockbrokers, said it was difficult to be confident about the euro given the sluggishness of the economies of the euro zone, particularly Germany and Italy, compared to the strength of the US economy.