Analysts forecast market rally to Christmas

Britain's leading share index is expected to probe higher levels next week with the FTSE 100 seen chipping away at resistance…

Britain's leading share index is expected to probe higher levels next week with the FTSE 100 seen chipping away at resistance at 5,200 as the mood turns more positive and cash is pumped into the market.

But while some scent recovery, others will be looking to company results for a reflection of the true state of play. Royal Dutch/Shell is one of many heavyweights lining up for inspection next week.

Industry watchers are preparing for lower third quarter numbers from the oil giant as oil prices have fallen and also seeking some indication as to what the company will do with its downstream US business.

"I would not be surprised to see the market kick on until Christmas... slowly it is starting to feel as if we have turned the corner and there is a lot of money being committed to the market," said one senior equity salesman.

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The FTSE-100 index has recovered over 800 points or 22 per cent from its September low but is still down 18 per cent from the start of this year.

Market watchers said there were hopes that the $100 billion stimulus package in the United States and global interest rate cuts would kick start the economy and massage markets upwards.

"What is driving the market higher is the level of liquidity coming through from the rate cuts. The market has taken heart from them and consumers are holding their nerve," said Mr David Cumming, head of UK equities at Standard Life.

He said a sharp fall back since the September 11th attacks on the United States in input costs, like oil and natural gas, was giving a material boost to the consumer.

"There is plenty of scope for the market to recover, but there is a fair degree of risk in the market and that is reflected in valuations. There would be more confidence if the political situation was more stable," Mr Cumming said.

Analysts at investment bank Morgan Stanley said the bear market was over and they recommended buying equities.

"The lows of September 21st will not be breached and we think that markets will rally into the first quarter of next year," they said in a report.

"In the next six months we expect plentiful liquidity, economic recovery, corporate restructuring and cheap valuations to drive markets up 15-20 per cent. The second quarter may mark the peak for 2002," said the report.

Morgan Stanley said it was overweight equities and underweight cash.