Wall St rally sends Footsie forward

The FTSE 100 index drove to within 20 points of its intra-day record yesterday at the end of a busy trading session in London, as part of a broadly-based advance by the equity market. The momentum behind the latest surge came from Wall Street's overnight rally, which saw the Dow Jones Industrial Average recover an early 20-point fall and finish the session 30 points higher on balance.

Also helping to boost sentiment was a series of generally good corporate results from leading British companies.

Encouragingly, the market's closing rise came after a series of bouts of substantial profit-taking, mostly in the leaders, which were well absorbed by market-makers and which saw the stock quickly passed on to what traders described as "eager buyers". Those buyers were said to have been institutional fund managers currently running portfolios underweight in British stocks.

Unlike the FTSE 100, which had to endure the sporadic spells of profit-taking, the FTSE Mid250 and SmallCap indices closed at or just below their best levels yesterday and never looked under pressure throughout the day. The latter finished 10.1 ahead at 2,228.8, its fourth consecutive rise, leaving it 146.2 short of its intra-day record.

The FTSE Mid-250, meanwhile, powered past 4,700 to close 28.8 higher at 4,700.4, extending its rise over the past six sessions to 215.4, or 4.8 per cent.

In the background, a batch of higher than expected inflation data, which caused a brief burst of uncertainty, was quickly shrugged aside. Annual headline inflation rose to 3.3 per cent and the underlying rate to 3 per cent: "A windfall and food inflation-induced blip," said one trader.

London's bullish mood came as no surprise to market-makers, who have suffered badly from stock shortages as Footsie surged past 5,000.

"There is a feeling around the City that the market still has some way to go before it meets any big resistance; we are being pushed ahead by the strong build up in liquidity and as long as Wall Street doesn't fall out of bed there is more upside to come," said one head of market-making.

He added, somewhat tongue in cheek, that the top of the current market cycle might come "when the big institutions known to be underweight suddenly shift their stance to a market weighting or when we see a big multi-billion all-paper bid".

Another leading market-maker said that the big institutions were "terrified of being left behind; they've had a few doses of being left at the starting post over the past couple of years and they haven't forgotten that".

He insisted that talk of switching out of the leaders into the second-liners was misplaced: "If you can't buy the leaders, which tends to be true in this market, then you buy the second best, which happen to offer good value on a relative basis."

Turnover of 826 million shares was viewed as slightly disappointing, being above Monday's depressed level but well below last week's one billion-plus numbers.