London's leading stocks raced higher yesterday on a mixture of continued hopes of further domestic interest rate cuts and a burst of takeover speculation.
After a relatively sedate opening, the FTSE 100 index burst through the 5,500 level in mid-morning and then ran through 5,600 over the lunchtime period, eventually finishing 132.2, or 2.4 per cent higher, at 5,602.2. It added some £23.8 billion sterling (£26.8 billion) to the value of the blue-chip stocks and took the index back near its 10-week closing high of 5,622.9 set on November 4th.
Around half of the gain came from a strong performance in the heavyweight bank and telecoms sectors, with Anglo-Hong Kong banking group HSBC up 5.2 per cent and British Telecom rising 5.7 per cent.
There was no such strength in the junior FTSE indices, however, until the afternoon. The FTSE 250, spurred on by a handful of the IT stocks, moved into positive territory and passed 4,800, closing 20.6 firmer at 4,801.5.
Dealers said rises in the front-line stocks had been exaggerated by a stock shortage which meant market-makers had to drive prices sharply higher in order to cover exposed short positions.
The extent of the surge in the market confounded those observers who have adopted an increasingly cautious view since the rally from the October 5th low point of the year when the FTSE 100 bottomed at 4,648.7.
Those cautious attitudes have tended to harden during recent sessions which have featured an acceleration in the number of companies reporting poor earnings news and profit warnings.
Among the market's more optimistic strategists is Mr Corey Miller at Paribas who pointed out that Britain had under-performed European markets by around 10 per cent since the start of the year and still offered "good value".
The stock market's advance was even more impressive given the profits warning background which continued to prompt individual stock price disasters yesterday, including a 16 per cent slide in shares of Storehouse, one of Britain's leading high street retailers.
Storehouse told its shareholders that its full-year profits would not match those of last year, confirming that the bad news in the high street, reported some weeks ago by Marks & Spencer, is widespread. Other store shares also suffered in the wake of the Storehouse news.
The grim earnings outlook swept right across the market, encompassing no fewer than three computer business services-related companies.
Rumours that a big merger/takeover is imminent rippled across the market from the outset, but there was no real confidence behind the speculation which shifted from sector to sector as the session wore on.
Some dealers said it was significant that some of the biggest gains were generally concentrated in the banking arena, which has long been viewed as a sector ripe for restructuring.
Whisky distiller Glenmorangie saw its first-half profits fall, but this was because of a drop in bulk sales and the group said it was confident about its prospects for the whole 12 months. Its A-class shares, however, dropped 7 1/2p to 690p.
Sheffield United rose 1/2p to 27p as it confirmed it was in advanced discussions which could lead to a consortium buying a stake of up to 13 per cent in the club.
Troubled photocopier group Danka Business Systems collapsed 18 1/2 p to 38p as it warned it may have to file for bankruptcy. The fall is only the latest blow to the share price which last year stood at 787 1/2p.
Babcock International, the facilities management and materials handling group, swung back into the black, transforming a hefty loss into a healthy profit - shares rose 2p to 63p.
Cable & Wireless Communications - up 12p to 505p announced the acquisition of two Irish telephone businesses from its parent Cable & Wireless - which lost 11p to 689p - as part of a two-year £30 million investment programme in infrastructure.
