Fed anticipation drives stock markets

LONDON'S Footsie sailed past the 5,600 level yesterday as stock markets worldwide rallied ahead of today's key meeting on interest rates by the US Federal Reserve.

The FTSE 100 Index raced 94.09 points higher to 5,602.54 - up 1.7 per cent - marking its first close above 5,600 since the end of April.

Wall Street's Dow Jones Industrial Average rose more than 100 points in early trading, with similar gains across Europe as the Cac 40 in France closed up 1.8 per cent and Germany's Dax finished 1.4 per cent higher.

Markets in the UK and US have not ruled out a Fed move to reignite flagging growth in the world's biggest economy when it reveals its interest rates decision this evening. There is a growing expectation the Fed's rate-setting committee might relaunch moves to buy securities and mortgage bonds in an effort to further stimulate the struggling American economy.

Yusuf Heusen, a senior sales trader at IG Index, said: "After months of choppy trading for stock markets, investors look like they believe this rally could well be different as markets are shaking off some of the concerns that stemmed any progress through the summer."

But in currency news, the pound weakened after gloomy economic indicators, with Bank of England data showing the worst August for mortgage lending in a decade.

Sterling slipped 0.5 per cent to $1.56 and 0.7 per cent to €1.19.

One of the biggest moves in the FTSE 100 came from oil giant BP after the US coastguard and the company itself declared that the Gulf of Mexico well had been permanently sealed.

Shares rose 8.3p to 411.4p, but the crisis is far from over for the oil giant as it faces the financial impact of clean-up costs, fines and civil lawsuits.

Lloyds Banking Group was also in the spotlight after announcing that chief executive Eric Daniels plans to retire in a year's time. Shares lifted 2.1p to 77.4p as the news removed uncertainty surrounding the post.

Defence giant BAE Systems was another riser as it announced a multi-million pound deal to buy part of an American intelligence business. The group's shares rose 4.6p or 1.4 per cent to 333.8p.

Supermarkets featured on the risers board after analysts at Bernstein lifted price targets across the food retail sector, citing rising food price inflation as a support.

Morrisons rose 7.5p to 306.3p, Tesco was 8.9p dearer at 437.5p and Sainsbury's added 8.7p to 394.1p.

One of the biggest rises in the FTSE 250 Index came from Brit Insurance after the sponsor of the England cricket team said on Friday evening that it had recommended a takeover proposal from private equity firms Apollo and CVC. Brit was up 40.5p at 1,028p.

Fellow second tier stock JD Sports Fashion joined Brit in making advances, up 13 per cent or 97p to 823p, ahead of its interim results today, which are expected to confirm a resilient first half from the sportswear retail group.

Among the Scottish stocks, Wolfson Microelectronics edged 1p higher to close at 214.25p as the Edinburgh-based firm announced changes among its non-executive directors.