Market Report: FTSE 100's Christmas rally boosts new year hopes

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The FTSE 100 rose yesterday, the last full trading day of 2006. The blue-chip index gained 15.5 points to 5,638.3 and completed an impressive Christmas rally. Over the past 12 sessions the FTSE 100 has rise 131 points, or 2.3 per cent, and lost ground on just two occasions. If forecasts by the City top's strategists are anything to go by, further gains can be expected in the new year.

Once again, the mining sector was behind the bulk of yesterday's advance. Xstrata rose 19p to 1,359p, Rio Tinto added 17p to 2,657p, Kazakhmys put on 10p to 770p, Anglo American improved 11p to 1,975p and BHP Billiton went 9p better to 944p. After these gains, the four mining players now see their share prices at record highs.

Retailers were also in demand. Marks & Spencer rose 5.75p to an eight-year high of 510p, GUS gained 11.5p to 1,031.5p, Woolworths ticked 0.25p higher to 39p, Clinton Cards added 2p to 67p and WH Smith put on 4.75p to 430.5p. Early data on high street sales has suggested that conditions over Christmas have not been as bad as some had feared at the start of the month. Dealers said investors were also returning to the retailers in the belief that the sector will receive a boost from falling interest rates next year. As it stands, a majority of economists in the City expect that the cost of borrowing to drop in the first half of 2006.

In the FTSE 250, which gained 75 points to finish at 8,821, Pendragon rose 9p to 525p after group said its £450m bid for the rival car dealer Reg Vardy, up 5p to 830p, had received valid acceptances from shareholders representing 28.3 per cent of the company. Lookers, 2p better at 458p, has also said it is interested in buying Reg Vardy but analysts are sceptical that it will succeed because of the huge amount of money it will need to borrow to carry out the deal. Brambles Industries climbed 5.5p to 417.25p after announcing the sale of its northern hemisphere industrial services business for £133m.

Elsewhere in the FTSE 250, the mortgage broker Kensington went 43p higher to 944p, FKI, the engineering company, added 4.25p to 116.25p, CSR, the semiconductor designer, put on 25p to 930p, and the property group Shaftesbury improved 12p to 466p.

Among the small caps, Goshawk Insurance lost 0.13p to 6.25p as one shareholder dumped 21 million shares - or 4 per cent of the company's share capital, at 5.5p. Brokers were not surprised to see such heavy selling of Goshawk. The company is in a bad state and its future will be very uncertain if it fails to secure fresh funding. In November, Goshawk, which has breached its banking covenants, said it needed to raise between $15m and $20m to pay down its debt burden. But the market has heard nothing more from the company on this front since then.

The FTSE Small Cap rose 14.1 points to 3,304. The index now stands at its highest level since the start of 2001.

Victoria Oil & Gas soared 10p to 124.5p after the explorer said it had raised £13m through a placing of 16.8 million new shares at 78p. The group, which is focused on developing its site in Western Siberia, boasted that the placing had been two-and-a-half times over-subscribed. Van Dieman Mines, steady at 22p, also unveiled a fundraising, albeit on a smaller scale. The group said it had secured £2.8m by selling 20 million news shares to institutional investors at 15p. Van Dieman will use the cash to buy two primary treatment plans and a tin concentrate clean-up plant which will help process the metals it extracts from its mines.

3DM Worldwide fell 0.5p to 32.5p on rumours that the group is looking to raise fresh equity. According to the market talk, the company has approached JM Finn, the stockbroker, to handle the fundraising. Speculation aside, 2005 has not been a good year for 3DM. Over the past 12 months the group's shares have lost half their value. On a two-year view 3DM, which claims to have invented a plastic as strong as steel, has seen the value of its shares slump by 75 per cent. The bulk of the damage was done in the summer of 2004 when the group issued a massive profits warning and was forced to clarify some of the figures in its annual results for that year.

Northern Petroleum climbed 8p to 51.5p after the company said it has decided to explorer three more oil projects based in the Netherlands.

Finally, Nasstar was the only company to list on the Alternative Investment Market yesterday. The IT services group saw its stock start trading at 25p and close at 28p, valuing it at £3m. Nasstar provides customers with the opportunity to outsource all their IT needs in return for a monthly fee.