Shares in a clutch of companies with varying degrees of exposure to the growth of Internet traffic and electronic commerce all basked in the glow. But analysts warned that valuations were in danger of becoming severely stretched.
Zergo, a supplier of Internet security software, saw its shares leap for a second day as it announced a clutch of new contracts and a strategic link with KPMG, the consultants. On Tuesday, Zergo unveiled partnerships with Intel, the computer chip giant, and PricewaterhouseCoopers.
"There is a growing awareness among investors of the potential we have as a company," said Henry Beker, the chief executive. Zergo shares closed up 65p at 767.5p.Two months ago they were below 200p.
The market value of Psion, the hand-held computer maker, rose 15 per cent on suggestions that Symbian, its joint venture to develop operating software for smart mobile phones, had signed up new partners.
A clutch of smaller companies, including Netcall, the computer telephony group and On-Line, the Internet gaming company, posted healthy gains. Shares in Internet service providers such as Internet Technology Group and Easynet also soared.
Market observers said a 75 per cent rise in profits from software giant Microsoft, revealed on Tuesday evening, was helping to feed investor appetites. They also pointed to the $6.7bn takeover of Excite, the Internet search engine company, by At Home, the supplier of high-speed Internet connections.
Analysts said UK investors were now looking at any company with Internet exposure. "This is all based on the valuation hysteria in the US making its way over here," one said. "It's a bubble that has to burst."
The euphoria even stretched to retailer Great Universal Stores as investors hunted for more liquid stocks that could act as a proxy for pure Internet companies, many of which are still relatively small and thinly traded. Although GUS has little exposure to the Internet at the moment, traders said electronic selling could replace much of the company's traditional catalogue retailing activities.
The value of Dixons, the electronics retailer, has already risen sharply on the back of its Freeserve Internet service.