Markets mixed but give generally warm response

THE Footsie was buoyed yesterday by the first joint statement from coalition partners David Cameron and Nick Clegg.

London's top share index closed up 49.24 points at 5,383.45, boosted largely by a stronger-than-expected start to trading in New York.

But Morgan Stanley shares fell after the Wall Street Journal reported that the investment bank was facing an investigation into its dealings in mortgage securities. A spokesman for the bank said it has not been contacted by the US justice department about the deals in question and has no knowledge of an ongoing investigation.

A relief rally for sterling after the formation of a new UK coalition government proved short-lived after the Bank of England's prediction that inflation would remain low sent the pound lower.

The prospect of rates remaining low for longer than expected pushed sterling to below $1.49 against the dollar, while it also lost earlier gains against the euro.

Cameron's arrival in Downing Street was met with relief in the City after five days of uncertainty about the shape of a new UK government, although attention quickly turned to plans for tackling the financial deficit.

CMC Markets currencies analyst Michael Hewson said: "The markets will be waiting to see whether the 6 billion worth of cuts promised in the Conservative manifesto will get implemented."

Chancellor George Osborne is expected to deliver a Budget by the start of July as he attempts to stave off the threat of a downgrade to the UK's sovereign credit rating, which would raise borrowing costs.