Weir leads way as FTSE nears 6,000 mark

Glasgow engineer Weir Group was the FTSE-100's biggest riser this year with a 150 per cent increase in value.

The top-flight index has risen by around 10 per cent to a two-and-a-half-year high of more than 5,900, despite a tempestuous year that included the bail-outs of Greece and Ireland, the formation of a new coalition government and a major disaster involving BP, its biggest constituent and leading payer of dividends.

The performance of the FTSE 250 index was even more impressive as the second-tier - seen as more representative of the UK economy - rose 23 per cent in the year to date, reflecting the recovery of British companies following the recession.

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But the austerity drive facing the UK and global economies has led to fears that the FTSE 100 will make little progress in 2011.

Michael Hewson, an analyst at CMC Markets, is not expecting the top flight to show much growth in 2011.

"The FTSE 100 won't get much above 6,000, which is not much higher than where it is now, and if it does it will be due to Asian growth," he said. The index, which makes two-thirds of its profits overseas, has been driven over the past year by the growth of the Chinese economy, said Hewson.

But there are mounting expectations that China's double-digit economic growth could slow if it ramps up interest rates in an attempt to put the brakes on inflation. A slowdown in the Chinese economy might cause commodity prices to fall and would have big ramifications for many blue-chip companies.

The index's growth over the past year has been largely driven by the strong performance of miners but disaster-struck BP saw its share price drop by nearly a half, although it has now recovered to within 30 per cent of its 2010 peak.

Banking stocks are also expected to lend little support to the FTSE 100 next year. The big four banks in the top flight helped the index grow over the past year, as part-nationalised Lloyds and RBS recovered with share price growth of 34 per cent and 37 per cent respectively, although Barclays and HSBC's shares dipped 4 per cent and 6 per cent.

But the sector will remain weak next year because of its exposure to bad debts, particularly in the eurozone, according to Justin Urquhart-Stewart, a director of Seven Investment Management.

Urquhart-Stewart predicts the index will hit 6,600 by the end of next year, which would represent an 11 per cent rise, but warns the FTSE's growth will fall off if China's economic boom starts to slow.