A strong opening on Wall Street helped the FTSE 100 index rebound sharply after last week's heavy losses.
Early indications from the US futures market were that Wall Street would open sharply higher. Sure enough the Dow Jones Industrial Average quickly gained more than 250 points, and the Nasdaq Composite more than 50, in the first few minutes of trading.
The UK market was strong throughout the morning as investors searched for bargains among stocks that had been beaten up last week. The rally accelerated during the afternoon and the FTSE 100 closed with a gain of 180.2 to 4,613.9. Nine constituents managed double-digit gains, including casualties such as Royal Insurance, British Airways and Prudential.
Some struggled to make ground but the replacement of new-economy by old-economy stocks was expected to bring down the price-earnings ratio, and increased the dividend yield, on the blue-chip benchmark.
A sharp fall in the Brent crude oil price, which fell below $22 a barrel for the first time since April 2000, also helped the market. Crude's strength last year weighed on the global economy by raising corporate costs and cutting consumer demand for other goods.
But yesterday's rally seems unlikely to mark the end of the equity market's recent volatility. There was no US military action at the weekend but action is expected soon; further terrorist attacks are possible; and it will take some time before the effect on the global economy of September 11th's atrocities become clear.
Morgan Stanley's strategy team feels that the UK market is well placed relative to its peers. "From an international perspective, the increasing uncertainty and volatility in today's equity markets should, in our view, favour the UK on a relative basis, given a defensive composition and high dividend yield." However, the investment bank has cut its UK GDP growth forecast from 1.9 per cent to 1.8 per cent, and for 2002 from 2.6 per cent to 1.8 per cent.
Turnover slowed from the heavy levels witnessed on Thursday and Friday but business was still active, with 2.32 billion shares traded by the 6 p.m. count. The number of bargains fell to 135,000 from 222,000 on Friday.
