The FTSE 100 index, driven down dramatically in the last few minutes of trading on Friday, recouped all and substantially more of those losses yesterday. And London moved into overdrive as Wall Street delivered another aggressively positive performance at the opening, with the Dow Jones Industrial Average posting a three-figure advance not long into the US trading session.
Merrill Lynch, the US securities house, added to the bullish feeling encompassing the London market.
In its latest strategy document, Merrill's Mr Philip Wolstencroft said: "We think the UK bull market is intact. Compared with bond yields, the market appears to be offering good value. We don't think bond yields will fall from these levels. Supply of equities is minimal, takeovers are for cash and directors are avid buyers of stock. Institutional cash weightings are at six-year highs. We suspect this constellation is more likely to precede a bull market than a bear trend."
The early recovery in the Footsie was mainly because the two stocks mostly responsible for Friday's fall, Glaxo Wellcome and SmithKline Beecham, rallied strongly.
Those two stocks alone accounted for over 15 Footsie points yesterday. The exceptional weakness last week, which is being investigated by the Stock Exchange, was variously ascribed to "basket trading" - arbitraging between the Footsie future and the underlying cash market and expiries of individually tailored options. It emerged late yesterday that two traders had been suspended because of last Friday's events.
The underlying trend in the market, meanwhile, was always on the upside, influenced by Wall Street's good performance on Friday, when the truncated trading session saw the Dow finish 28 points higher.
Sentiment was also bolstered by good showings from some far eastern markets, notably Hong Kong and Tokyo, both of which rose in excess of 2 per cent.
A further bull point for the market was the emergence of further takeover activity, partly responsible for helping to support UK equities during the recent bout of turbulence.
The day's domestic economic news, the purchasing managers' index, consumer credit data and M0 money supply details for November, had negligible impact on sentiment, according to dealers.
Lifted by the US events and the big push by Merrill Lynch, Footsie surged through the 4,900 mark, finishing 90.0 higher at 4,921.8, having hit a session high of 4,932.0. Gains were concentrated in the leaders, however, and the FTSE 250 was only able to record a 0.9 rise at 4,657.6. The SmallCap edged a mere 1.0 ahead to 2,273.1.
Turnover at 6 p.m. was a disappointing 599 million shares.
