FTSE soars to new record as pound falls on euro fears
Thursday 25 February 1999
The index has climbed 7 per cent so far this year, pushed ahead by the string of special dividends in recent days. It stands 2 per cent higher than the previous closing high of 6,179.0 in July, having regained all of the ground lost during last autumn's financial market turmoil.
The pound fell sharply yesterday as the currency markets absorbed the plans for Britain to join the euro. Prime Minister Tony Blair's description of the changeover plan as a "change of gear" was read as a signal of the Government's enthusiasm to take the UK into the single currency.
Tuesday's trade figures, showing the deficit last year climbing to its highest for a decade, also weighed on sterling.
The pound fell below $1.60 to its lowest level since October 1997, down from Tuesday's $1.6140. The strength of the dollar across the board means the pound has lost 4 per cent of its value against the US currency this year. It also weakened slightly against the euro yesterday, reaching a level of 68.6p, down from 68.2p to the euro.
Analysts said share prices were reacting to Centrica's pounds 350m payout to shareholders, the latest in a series of special dividends now adding up to more than pounds 7bn. It followed the pounds 5bn from Unilever on Tuesday, and special dividends worth pounds 1.5bn and pounds 236m announced by the Halifax and Woolwich respectively last week.
However, there were other reasons for the stockmarket to make such strong gains.
"There has been a consistent flow of positive surprises. A new FTSE record was inevitable," said Philip Isherwood, equity strategist at Dresdner Kleinwort Benson.
Few of the corporate results reported so far this season have been disappointing, and most analysts expect further merger activity.
In addition, UK pension and insurance funds are still holding record amounts of cash. "Pension funds are significantly underweight in FTSE shares," said Mr Isherwood.
The flow of cash into the market is being boosted by private investors, many putting money into private equity plans ahead of the end of the tax year.
Shares in the UK got a helping hand from Wall Street, which reacted favourably to the second day of testimony to Congress by Alan Greenspan. The Chairman of the US Federal Reserve emphasised there were risks to the outlook for the US economy.
This was seen as a hint of higher interest rates, although he indicated that the Fed was prepared to move them in either direction. However, Mr Greenspan's forecasts for growth and inflation in the US remained very favourable.
The Dow Jones index was nearly 18 points higher, at 9,562.01, by noon.
Shares were higher in Europe too. The biggest advances were Frankfurt, up nearly 1 per cent, and Milan, where the index ended 1.7 per cent higher.
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