Markets: Footsie on a high as investors stand firm

The Footsie soared 1.5 per cent to an 11-week high yesterday as key announcements due this week from central banks in the UK and US failed to rattle investor nerves.

Strong gains from banks and insurers helped the FTSE 100 close 78.13 points higher at 5,410.52 in a buoyant start to the week, boosted by thin summer trading volumes, just 53 per cent of its 90-day average volume.

The rise helped London's blue-chip share index recover ground lost on Friday when US job figures offered further signs the US economic recovery was grinding to a halt.

Jimmy Yates, head of equities at CMC Markets, said: "Stocks remain on historically low price earnings multiples, so any weakness presents a good buying opportunity, particularly given the robustness of the recent corporate earnings season."

In America, the Dow Jones industrial average also rose in early trade amid expectations that the Federal Reserve will announce further stimulus measures, possibly as soon as today.

Will Hedden, sales trader at IG Index, said: "Investors still seem to be concerned that the recovery in stock markets has got well ahead of the overall 'real-world' back drop this year and it looks like markets could do with another jolt - maybe in the form of further US quantitative easing to try and kick-start some sort of enthusiasm for shares."

While a no-change decision is still widely-expected, the Fed is likely to indicate in its statement that the US economy has lost momentum.

The Bank of England, which publishes its quarterly inflation report tomorrow, will also stoke fears about the UK economic recovery when it will predict a mix of slower growth and higher inflation over the next two years.

Insurers performed well after City firms, including Panmure Gordon and Bank of America Merrill Lynch, upgraded their guidance on Aviva in the wake of the company's interim results last week, while banks also showed a solid performance following their solid reporting season last week. Aviva shares extended their recent rally with a gain of 8.3p to 390p, while Prudential rose 15.5p to 587p ahead of its own figures on Thursday.

It is expected to announce a sharp hike in its dividend, but reject calls for a strategic revamp following its failure to land AIG's Asian arm AIA.

Legal & General provided the sector's biggest rise with a gain of 3.2p to 90.3p while banking giant Barclays recovered from last week's fears over revenues at its investment banking arm to improve 10.4p to 335p.International Power soared 4 per cent or 13.6p to 380p, after reports said France's GDF planned to pay a special dividend of up to 1.3 billion as part of its bid for majority control.

But social housing firm Connaught continued to suffer as speculation mounted that shareholders were likely to be wiped out in a debt-for-equity swap that will hand control to banks.

Shares in the FTSE 250 stock were down another 29 per cent or 4.5p to 11p after falling 46 per cent on Friday following its warning that it faced a material full-year loss.

Elsewhere, construction firm Morgan Sindall added 11p to 570p despite warning the recession in the building sector was "not over yet".