A sparkling performance by gilts in the wake of a much better than expected public sector borrowing requirement for August, plus a benign US inflation report, saw UK stocks race ahead for the second consecutive session. The US news was viewed by many as dispelling the chances of a rise in its interest rates at the end of the month, when the Federal Reserve meets to determine American monetary policy.
It was greeted by a scintillating performance by Wall Street, where the Dow Jones Industrial Average shot up almost 70 points.
And there was further good news for the market from the foreign exchanges where the Bank of England's sterling index at one point dropped to its lowest level since the end of May.
Sterling's latest retreat gave heart to the big exporters which featured prominently. In the background the stream of results generally continued to please the market, apart from one or two exceptions.
With the London market pleasantly surprised at the better than expected inflation news from the US the FTSE 100 suddenly moved into overdrive, recouping all of an initial decline and eventually finishing a net 73.5 higher at 4,976.4.
Over the past two session the FTSE 100 index has risen 128.2, wiping out almost all of last week's losses.
There were gains too for the market's second-liners and the smallcap stocks. The FTSE 250 ended 5.9 ahead at 4,642.8 and the FTSE SmallCap 4.1 higher at 2,278.1.
US inflation rose 0.2 per cent during August, below consensus forecasts, which expected a 0.3 per cent rise. Core inflation came out at plus 0.1 per cent.
Those numbers sparked another surge of buying interest in US Treasury bonds, which, coupled with the encouraging PSBR data, saw UK gilts post gains stretching from well in excess of a point to almost two points across the medium to long dated issues.
But it was not all plain sailing for London. Earlier, sentiment took a dive, with share prices on the retreat and the FTSE 100 down over 26 points within an hour of the opening, as dealers and market-makers sought to lighten their trading books after a disappointing overnight performance by the Dow.
Up over 30 points as London closed, the Dow subsequently dived towards the close of US markets, finishing 21 points lower on balance after disappointing corporate news from Microsoft, one of the US market's leading lights. At that point the FTSE future had been trading at a 10 to 15-point discount.
But the PSBR news and the subsequent news from the US saw the future shift violently, to a 45point premium around the close of trading. "There was no stock in the market and it developed into a huge squeeze," said one weary market-maker.
Turnover in London picked up to 770.9 by the 6 p.m. cut off point, with non-FTSE 100 stocks accounting for 58 per cent of overall volume.
