FTSE rise rolls on as it tops 5,000 for first time in a year

Published on 09/09/2009 21:10

SHARES hit their highest level in almost a year yesterday as the FTSE 100 index breached the 5,000 mark amid a revival in takeover activity and fresh hopes of economic recovery.

Investors snapped up shares across a broad range of sectors, including oil and banks, pushing the blue-chip index up 57 points to close at 5,004.3, a gain of 1.2 per cent and the highest closing level since 26 September last year.

It has now bounced back more than 40 per cent from the six-year lows plumbed in March.

The FTSE 350 banking index has surged 140 per cent since then as the threat of imminent collapse passes and investors return to financial stocks. Part-nationalised Royal Bank of Scotland has seen its shares more than double in value.

Sentiment was lifted yesterday by news that UK exports had risen at their fastest monthly pace since the start of last year, boosting hopes that global trade is beginning to gain traction.

A recent revival in corporate activity such as Kraft's 10 billion-plus bid for Cadbury has also encouraged investors to pile back into the stock market.

However, the Footsie remains about 8 per cent below its level prior to the collapse of Wall Street firm Lehman Brothers a year ago, which sent shockwaves through the global financial system.

Tim Whitehead, a stockbroker at Redmayne-Bentley, said: "We see the markets treading water in the short term. We would not be surprised to see a bit of profit-taking coming in.

"There are questions to be addressed on the outlook for inflation and the impact of quantitative easing."

The Bank of England was today expected to remain cautious and keep interest rates pegged at a record low of 0.5 per cent while continuing with its 175bn quantitative easing programme to boost the money supply.

Official data showed the value of UK exports rose 5 per cent on the month to just under 19.2bn. Companies are likely to have benefited from gradually recovering overseas markets and a weak pound.

Meanwhile, the value of imports increased by 3.5 per cent to some 25.7bn, keeping the country's trade gap on a narrowing trend.

Hetal Mehta, senior economic adviser to the Ernst & Young Item Club, said an improvement in the eurozone economy – where France and Germany recently came out of recession – was helping to narrow Britain's goods deficit, "albeit by a small margin".

"With both exports and imports picking up pace, it seems that global demand is beginning to recover," she added.

"Looking ahead, the continuing consumer retrenchment in the UK should help to suppress imports and boost trade numbers in the coming months."

Evidence of a narrowing trade gap came a day after official figures showed the strongest rise in British manufacturing output in 18 months.

At the same time, respected think-tank the National Institute of Economic and Social Research said the UK economy had enjoyed its first quarterly growth since May last year in the three months to August.