Lafontaine resignation sends euro soaring

THE EURO soared yesterday afternoon after the surprise resignation of Oskar Lafontaine, the controversial German finance minister, overshadowing record share price gains in London and New York.

Within minutes of the announcement, the euro, which had earlier languished near its record lows, gained more than 2 cents against the dollar to $1.10 while German government bonds also made sharp gains.

Analysts said the euro, which has performed poorly against other leading currencies since its launch at the beginning of the year, would benefit from an end to the political uncertainty caused by tensions within the German government.

There was also relief at an end to the public row between Mr Lafontaine and the European Central Bank over his calls for interest rates to be cut.

Alison Cottrell, chief economist at PaineWebber, said: "The markets love it because Red Oskar has gone."

She said the removal of political pressure on the European Central Bank and the strengthening of the euro made an interest rate cut on the Continent more likely.

Gwyn Hacche, an analyst at HSBC James Capel, said: "We can hope the next finance minister will keep his mouth shut, and will be rather more business- friendly."

Before the announcement, leading UK and US shares stormed to new record highs, with analysts surprised yet again by the US economy's capacity for non-inflationary growth.

The bullish sentiment on Wall Street spilled over to stocks in London, where the FTSE 100 set both a new intra-day record and a new record close.

More than 1.2 billion shares changed hands, and by the end of the day the FTSE was up 94.2 points at 6,335.7, off its earlier peak of 6,360.3.

The more broadly-based FTSE All Share Index also benefited from the Dow's surge, setting a new record close of 2,908.34.

Stronger-than-expected retail sales data helped the Dow Jones to break through the 9,900 barrier for the first time.

Official estimates of retail sales growth in January were sharply revised upwards, from 0.2 to 1 per cent. Initial growth rates for February were also robust.

Ken Wattret at Paribas said: "We are now seemingly back to the Goldilocks scenario of low inflation, strong growth and the Fed just sitting on its hands."

The recent jump in oil prices gave shares in London and New York a helping hand. Oil producers, including Shell and BP, all recorded sizeable gains on hopes that Opec would soon agree sizeable production cuts.