The blue chips on the London stock market shook off their new year woes yesterday and mounted a sharp rally, led by the media and technology stocks.
The FTSE 100 index, which has fallen 800 points since the start of the year, recouped about a fifth of those losses, ending 167.2 higher at 6,295.7. A big deal by Deutsche Bank in the FTSE 100 future was said to have been the route for one index fund manager to put more than £1.2 billion into British equities.
Information group Reuters led the way as investors responded warmly to its new internet-based strategy. There were also strong gains in BSkyB ahead of today's figures, and Pearson, which owns the Financial Times.
There was continuing interest in technology stocks, with Misys, CMG and Logica recording double digit gains. Kewill Systems and Eidos were the best performers in the FTSE 250. The Techmark index was up 151.4 or 3.3 per cent to 4,698.5.
Sentiment was helped by US figures which appeared to show that productivity gains were allowing the economy to grow rapidly without inflation. The Dow Jones Industrial Average quickly jumped more than 100 points and was 80 points ahead as London closed.
But the strength of the blue chips was not shared by the smaller and medium-sized stocks. The FTSE 250, which has a strong manufacturing weighting, was affected by the rebound in sterling to 109 on the trade-weighted index; it dropped 95.5 to 6,028.1. The SmallCap index slipped 8.9 to 3,144.1.
Yesterday's rebound in the Footsie came despite expectations that the Bank of England will raise interest rates at its two-day meeting which starts today. British equity strategists at Paribas, said that a quarter point rate rise would be a non-event, since it was fully discounted in the market.
Despite the rally, the British market has still performed poorly, in absolute and relative terms, this year. In it latest strategy note Lehman Brothers has come up with an explanation for the recent underperformance of the British equity market: In bullish conditions, it seems that investors are more prepared to back the improving profitability of continental Europe over the margin pressure that is becoming increasingly evident in Britain. " But, in more difficult conditions for global equities, the London market would appear to offer a more defensive combination of modest valuations (compared with other equity markets) and higher levels of profitability.
