A broadly-based rally carried the FTSE 100 index back to the top of its recent 5,000-5,200 trading range yesterday.
In the absence of significant domestic economic data, it seemed that relief at the absence of bad news, more than the presence of good news, had fuelled the rally.
While the anthrax outbreak in the US remains a worry, the assault on Afghanistan has yet to spread into a wider war and there have been no further terrorist incidents on the scale of September 11th.
Although the economic outlook has worsened since that date, this has been offset by the willingness of central banks around the world to cut interest rates.
One salesman at a leading broker said: "Institutions are pretty cautious and nervous at the moment. They are waiting to put money back in when the market falls, but they're a bit taken aback that it's not falling." Some good corporate news helped fuel the rally yesterday.
Abbey National said there had been no significant decline in credit quality during the third quarter; the bank had made an unexpected bad debts provision at the end of the first half.
The banking sector was a strong performer, adding around 45 points to Footsie. For the second day running, the TMTs (technology, media and telecom stocks) also played a full part in the rally. Investors hope that the three sectors, which have been heavily battered since March 2000, will benefit most when the recovery comes through in 2002.
An upbeat forecast from Orange also helped rival mobile phone operator Vodafone.
The FTSE 100 was strong from the opening, helped by a good overnight performance on Wall Street, where the Dow Jones Industrial Average rose 173 points. With Asian and European bourses rallying, Footsie was never in negative territory, closing 112.9 points higher at 5,193.3.
While the UK market is now above its level before the attacks of September 11th, ABN-Amro advises caution.
"While the UK has arguments in its favour relative to other markets, our concern over equity ratings suggest investors should chase the rally with care."
