WALL Street's startling rebound on Friday and its early strength yesterday, coupled with encouraging domestic economic data, provided the perfect background for the FTSE 100 index to break back through the 4,100 level.
Yesterday's rise pushed the total valuation of the British equity market through the £1 trillion mark for the first time.
Closing 50.7 points, or 1.2 per cent, higher at 4,107.3, Footsie posted its biggest one day gain so far this year, and looked set to challenge its all time closing and intra day highs.
Gains in equities were not confined to the leading stocks, but spread evenly across the second liners and smaller capitalised issues, which have recently tended to outpace the blue chips.
The FTSE Mid-250 index ran up a 27.1 gain at 4,534.9, its best level this year and only 33.8 below its all time intra day record, 4,568.7, achieved on April 26th last year. The FTSE SmallCap, meanwhile, finally penetrated its previous intra day peak, racing up 12.8 to a record 2,247.4.
News that British producer output prices rose 0.5 per cent during December and input prices fell 0.5 per cent, were very well received.
The numbers were said by dealers to have reduced the chances of an interest rate rise following tomorrow's regular monthly meeting between Mr Kenneth Clarke, the Chancellor of the Exchequer, and Mr Eddie George, governor of the Bank of England.
Gills celebrated the PPI news, posting gains ranging from 15 to 29 ticks, giving encouragement to the equity market. There was less help from the US bond market, which was trading level to a shade easier, ahead of today's inflation and retail sales news.
Away from the economic scene, there was a distinctly bullish feel to the equity market where talk of fresh corporate moves was circulating freely towards the close.
The financial sectors, especially insurance, were seen by dealers as an arena ripe for a burst of takeover activity - financial stocks occupied seven out of the top 10 places in the FTSE loo performance table.
There was also evidence that the big institutions were starting to shift funds out of manufacturing and into financial shares in order to build weightings ahead of the flotations of a number of building societies.
A report that AMP, the Australian life assurance group, is looking to buy a British life and pensions group reignited the long running takeover talk in insurances. Marketmakers said they did not dare close their books short of stock in the sector, in case a bid materialised.
General Accident, the composite insurer, was seen by some dealers as the focus of much of the speculation with a merger or bid involving Legal & General one of the most mentioned stories. Significantly, Prudential shares rose sharply just before the close.
Turnover continued to pick up, reaching 1.03 billion shares at 6 p.m. Customer business on Friday jumped to £1.6 billion sterling, the highest since well before Christmas.
