City File: Shares bounce back into fashion

MARKETS don't like dogmatists. So the return from a slavish adherence to the ERM to old-fashioned pragmatism - implying growth, inflation and interest rate cuts timed to wow the Tory party conference early next month - was a winner. Liberated from the helplessness that has overhung it since the post-election euphoria died away, the FT-SE 100 jumped 188 points to 2,567 in two euphoric days. Even so, it is still 170 points below the post-election record set in May, when the ERM and the zero inflation goal still ruled. So, in theory, there should be more to go for.

But beware of the froth. As Alistair Ross-Goobey of James Capel, a former Lamont adviser, points out, if gilts yield 10 per cent then the Footsie could be as low as 2,262 by the end of 1993. But if gilts are on 9 per cent - and dividends start to grow sooner rather than later, the index could reach the magic 3,000 mark within the next year.