Wall Street drags FTSE upwards

MORE evidence that inflationary pressures in the US are under control induced another powerful display by Wall Street yesterday and helped a rather reluctant London market to march ahead to close just below the day's best level.

Earlier, London had sprinted higher on a mixture of revived takeover hopes and encouraging news on high street sales, before falling back just ahead of a cautious Bank of England inflation report.

The bank's report had little lasting effect on gilts or equities, however. Gilts ended around the day's highest levels, lifted by a strong performance by US Treasury bonds.

Sentiment in mid-morning was also given a severe testing by another large sell-off in utilities as investors continued to react to the harsh Ofgas review. British Gas remained in the firing line throughout the day, with the shares dropping to 190p, easily the lowest for almost six years, before staging a rally. Electricity and water stocks were roughly handled, as was BT, ahead of its preliminary figures expected tomorrow.

But, by the close of trading, the FTSE 100 index had recaptured all of its earlier vigour and settled a net 20.5 higher at 3,759.7.

The preponderance of utilities in the second-tier index, the FTSE Mid-250, weighed heavily on that measure, which was always in the red. It eventually settled 2.6 points off at 4,509.8.

A late story doing the rounds was that a bid for either Royal Bank of Scotland or Standard Chartered was in the offing; there was also a vague suggestion that Lloyds TSB was considering a move against one of the two banks, which would require a heavy fund-raising exercise.

Specialists pointed out, however, that Lloyds sold its long held 4.7 per cent stake in Standard Chartered only last year. Dealers said both Scottish banks, and Standard Chartered, remain prime bid targets.

Market-makers were reassured by Wall Street's latest excellent showing which saw the Dow Jones Industrial Average up some 30 points shortly after the start of trading. The expiry of FTSE 100 index options on Friday is seen as bullish. with some dealers noting that the market tends to move up strongly ahead of a significant expiry and slip back afterwards.

Economists were happy about the latest US economic news. Mr Richard Jeffrey, group chief economist at Charterhouse Bank, said he thought a rise in US interest rates after next week's Federal Reserve Open Market Committee meeting was "most unlikely". He added: "A rise in US rates might occur this year, but not yet."

PowerGen was one of the market's poorest performers during the morning but raced up late in the day, after it sold its stake in Midlands Electricity. Traders were also encouraged by news that the generator had brought forward its results to today. Rum ours were rife that the company was about to unveil a big special dividend.