Already in festive mood, with dealers confidently talking about an end-year run up, London's equity market received an early Christmas present from the Monetary Policy Committee (MPC) which left interest rates unchanged.
That news, plus a flurry of intense speculation that more big bids are imminent, gave share prices a second wind, driving the FTSE 100 index up strongly to close a net 111.6, or 2.2 per cent, higher at 5,082.3.
The financial sector was the focus of the market's takeover speculation with Norwich Union, floated in the summer, shooting higher on stories that a bid from one of the big banks, specifically Halifax, Barclays or NatWest, is in the pipeline. Other insurers also raced higher, including Commercial Union, General Accident and Prudential.
Talk of further upheavals in British investment banking and stockbroking, with a rumoured merger of Swiss Bank Corp and UBS leading to the sale of UBS's investment banking division being sold on to JP Morgan, kept dealing rooms buzzing with speculation.
The recent sale of Barclays' European and British equities division to Credit Suisse First Boston and NatWest Bank's equities and derivatives businesses to Bankers Trust of the US and Deutsche Morgan Grenfell have triggered a spate of speculation of further imminent moves in that area.
Earlier in the session, the Footsie had re-crossed the 5,000 level it lost during the dramatic events in late October, when the tremors from the steep losses in Far Eastern markets, notably Hong Kong, rippled across global stocks.
Again it was events in the Far East, where the International Monetary Fund agreed a $55 billion (£33 billion) rescue package for South Korea, which was partly responsible for triggering the substantial gains in London, as well as other European markets.
Hong Kong's Hang Seng index rose 2.3 per cent and that performance, coupled with a comforting showing by Wall Street, where the Dow Jones Industrial Average nudged higher, prompted the initial impetus behind British stocks.
Gilts lent additional support to equities and were also sustained by the recent strength of US Treasuries. The latter dipped shortly after trading commenced after the 3,000 drop in the weekly jobless figure, which caused momentary unease about today's US non-farm payroll report. The report is one of the crucial factors used by the US Federal Reserve's open market committee to determine US interest rate policy.
The MPC's decision came in the wake of the Confederation of British Industry's November survey of distributive trades, which highlighted a marked slowing in retail sales during the month.
But the jobless claims did no damage at all to Wall Street which continued its run of gains, with the Dow posting a near-20 point rise within 10 minutes of yesterday's opening bell.
The day's company news was mostly supportive of the market, with GEC's plan to buy in £300 million-worth of its stock well received. Among others to grab the City's attention was media group Reuters which announced it was to return £1.5 billion to shareholders in a capital restructuring. It said shareholders would receive 13 new shares and £13.60 for every 15 shares held. Shares rose 30 1/2p to 710p.
Racal Electronics agreed the sale of its health and safety unit to US firm 3M for £43.2 million, with the funds set to be used to repay debt. Shares rose 3 1/2p to 222p.
Food and drink group Grand Metropolitan said it expected its merger with Guinness to be completed within two weeks after it reported a 1.9 per cent rise in pre-tax profits to £981 million. GrandMet climbed 12p to 547p while Guinness gained 12 1/2p to 549p.
The FTSE Mid-250 and Smallcap indices also registered strong gains, the former climbing 28.9 to 4,721.3 and the latter 10.2 to 2,289.1.
Turnover at the 6 p.m. cut-off point came out at a highly respectable 850 million shares.
