FTSE fortunes buoyed US and Japan

MOVES by Japan's central bank to weaken the yen and better-than-expected economic data from the United States helped the Footsie to surge ahead by 1.4 per cent yesterday.

The FTSE 100 Index closed 79.79 points higher at 5,635.76 - after a late session spurt sparked by hefty early gains on America's Dow Jones Industrial Average.

A report revealed that the powerhouse US services sector saw growth pick-up in September thanks to stronger demand, helping allay recovery fears in the world's largest economy.

Stocks globally had already been put on the front foot after Japan's decision to cut its key interest rate even closer to zero and relaunch money boosting efforts.

Michael Hewson, an analyst at CMC Markets, said: "Equity markets have rebounded strongly, moving back towards the top end of their recent ranges, after the Bank of Japan cut its benchmark interest rate.

"This has helped markets shrug off a number of negative factors, including a statement by Moody's that it might cut Ireland's credit rating again, while a Eurostat official suggested that Greece's 2009 deficit may have to be revised upwards."

The UK also had some good news on the service sector after the latest Markit/Cips study showed higher growth against expectations for a fall.

Better economic news helped the pound rise 0.7 per cent to $1.59, although sterling eased back against the euro after Monday's gains.

In corporate news, there were encouraging figures from supermarket chain Tesco and Thomson Holidays owner TUI Travel.

Tesco edged up 0.9p to 431.3p after it reported a slight improvement in UK like-for-like sales and said it was benefiting from the "tailwinds of recovery". Half-year pre-tax profits lifted 12 per cent to 1.6 billion.

Most City analysts said the update allayed fears about difficult trading conditions, although Evolution Securities said the underlying trends were "not quite so rosy".

Sainsbury's, which is due to issue a trading statement this morning, gave back early session gains to stand 0.3p higher at 389.6p.

TUI was one of the session's top risers after the group said its summer programmes, which run to the end of October, were now almost fully sold following strong booking activity in recent weeks. TUI shares gained 9.1p to 225.9p - a rise of 4 per cent.

British Airways was flying high after it posted an increase in passenger traffic for the first time since February.

The carrier said 4.3 per cent more passengers travelled with the airline last month. Shares lifted 15.5p to 254.6p.

Satellite communications firm Inmarsat posted the biggest fall in the Footsie after its largest shareholder sold half its 28 per cent stake in the firm.The move by private equity firm Harbinger appeared to dash hopes that it will table an outright bid for Inmarsat, which dropped 4 per cent or 26p to 629p.

In the FTSE 250, home insurance group Homeserve improved 4 per cent, or 17.1p to 459.1p, after a positive note from broker Credit Suisse.

It said recent transactions had strongly increased Homeserve's growth potential and earnings visibility.