Market Report: FTSE 100 soars on hopes of pre-Christmas rally

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The Independent Online

Investors were betting yesterday that the stock market will notch up a strong rally in the run-up to Christmas. After breaking through 5,470, an important technical level, early during the day the FTSE 100 raced to a four-year high of 5,531.

A lacklustre start to trading on Wall Street, however, held back the index in the afternoon. The blue-chip gauge closed at 5,498, up 38 points on the day, and just shy of a four-year high.

"The bulls are convinced that a Christmas rally is well and truly under way," Will Armitage, a senior dealer at the spread-betting firm IG Index, said. He pointed out that the stock market has enjoyed strong gains from the start of November to Christmas in eight of the past 10 years.

Big mining companies led the index higher. Antofagasta rose 35p to 1,690p, Rio Tinto gained 34p to 2,414p and Anglo American improved 25p to 1,836p. UBS supported the trio by telling its clients that all three miners remain significantly undervalued despite their strong performance over the past two years.

UBS was particularly bullish about Antofagasta. It calculates that if the present strength in the copper and molybdenum price continues earnings at the company could more than double.

Vedanta Resources gained 35.5p to 685.5p as Citigroup singled out the group as a major beneficiary of the rising zinc price. The value of the commodity has soared 35 per cent since the summer and Citigroup said it does not see why this trend will be reversed any time soon. Given these conditions it rates Vedanta as a "buy".

At the smaller end of the mining world, the record gold price pushed Golden Prospect 2p higher to 51.25p and Peter Hambro Mining up 17.5p to 825p. Grey Star Resources, which has a multimillion-ounce gold deposit in Colombia, improved 33.5p to 358.5p.

Outside the mining sector, takeover rumours had a major effect on prices. Cable & Wireless rose 2.25p to 119.75p on hopes that France Telecom will soon come forward with a 175p-a-share offer for the company. Misys, 7.75p better to 224p, was still being touted as likely to be bought by a larger player from the IT services world.

Meanwhile, BG Group rose 7p to 561.5p on talk of a bid from Royal Dutch Shell, 24p better at 1,901p.

In the financial arena, Lloyds TSB added 7p to 474.5p amid rumours of a possible merger with Holland's ABN Amro. For a long time during the session Amvescap, which finished the day 4.25p higher at 392.5p, was the top blue-chip performer on renewed speculation of a move on the company from its US rival Janus Capital. Analysts were quick to mention that Amvescap is a major beneficiary from the rising dollar.

Man Group rose 45p to 1,805p after Deutsche Bank raised its price target on the hedge-fund manager all the way to 2,020p. It believes that the prospects for the company to add to its assets under management are very good at present, and predicted a strong increase in this number in the next six months.

Centrica, 1.5p lower at 240.25p, missed out on the stellar gains notched up by the majority of blue chips after Lehman Brothers warned that the group's earnings were at risk from the weather. The US broker fears that the arrival of freezing weather conditions to the UK will push gas and electricity prices sharply higher, and suggested that a severe winter will cause them to soar.

Such a scenario would be very bad news for Centrica. Under these circumstances the group, which supplies the UK with electricity and gas through its British Gas subsidiary, will see its earnings hit hard. A profits warning is even a possibility.

Centrica's major problem is that it struggles to pass on rising gas and electricity prices to its customers and so its only option is to absorb them. This inevitably results in low profits at the utility. Hence, the US broker views Centrica shares as an unexciting prospect for the near term.

Among small caps, Max Petroleum jumped 9.5p to 68.25p as the company gave a series of bullish presentations to institutional investors. Victoria Oil & Gas rose yet another 17p to 129p as more investors poured into the stock after its find of half a trillion cubic feet of gas at its site in Russia. Some talked of Victoria as the next Cairn Energy. The once tiny explorer is now a FTSE 100 company.

Meanwhile, Regal Petroleum, which in March was heralded as the next Cairn Energy, slumped a further 6p to 86p as investors fretted about the ongoing legal disputes the company faces over its key assets in the Ukraine. Just nine months ago, Regal Petroleum shares traded at more than 400p, but now the company is largely shunned by investors after a series of high-profile drilling disasters.

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