Footsie bounces back as fears of German rate rise recede
Wednesday 20 August 1997
Leading shares returned to favour yesterday after Wall Street continued its recovery from last Friday's sharp fall and the prospect of an imminent rise in German interest rates receded. The FTSE 100 index closed 79 points higher at 4914.0, clawing back some of the 4.7 per cent of its value it had lost in the previous five trading sessions.
Shares were boosted in early trading after the Bundesbank announced that its next securities repurchase would take place at an unchanged Repo rate of 3 per cent. Further encouragement was provided by a slowing in the rate of annual money supply growth in Germany from June's 6.4 per cent to 5.7 per cent.
A tightening of German monetary policy also appeared less likely after a report from the Organisation for Economic Co-operation and Development (OECD) said there was no need to raise interest rates. The report said inflation was under control, while the German economy was set to grow 2.25 per cent and a further 2.75 per cent next year on the back of the continuing depreciation of the mark.
Worries about an early rise in German interest rates were a major contributor to last Friday's heavy stock market falls on both sides of the Atlantic. But doubts crept in after evidence emerged of a split within the Bundesbank over the need to raise interest rates.
Sterling moved higher again yesterday to close at just under DM2.95. The rise in the pound pegged back the market's second-liners, which include many exchange rate vulnerable exporters that have benefited from the perception that sterling has peaked for the time being. The FTSE 250 index of companies just outside the top flight added 17.2 points to 4680.8.
Second-line stocks were also affected by worries about retail sales figures due to be announced today which are expected to show a sharp rise in activity on the high street following this summer's building society conversion windfalls. That could increase the pressure for further interest rate rises which would put more upward pressure on the exchange rate.
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