London Market: Footsie set for record on growth hopes

THE UK's benchmark FT-SE 100 index may rise to a record this week, led by construction and manufacturing companies amid optimism that economic growth is picking up. Banks could gain on hopes for more pan-European mergers in the industry.

"The economic crisis is past," said Michael Stam, manager at Fimagest in Paris. The recovery "hasn't hit the bottom line of companies yet". He's been buying firms likely to benefit from economic growth, such as Ivensys, BP Amoco and GEC.

The FT-SE 100 rose 0.66 per cent last week, closing at 6527.80 Friday, just 71 points off its 28 April record. Banks led gains, buoyed by Lloyds TSB on hopes a recent cut in interest rates to 5 per cent will boost lending revenue. The FT-SE banking index was up 4 per cent on the week. Supermarket chain Asda was the biggest gainer after a bid from Wal-Mart topped rival Kingfisher. Asda rose 17.1 per cent, while Kingfisher, the biggest decliner, shed 10.4 per cent.

A series of economic reports last week fuelled optimism over economic growth. The FT-SE construction and building index has gained 10 per cent over the past three weeks. Invensys, the world's largest maker of factory controls and equipment, climbed 14 per cent in last seven trading days.

Gilts also may extend a rally that's driven yields down 18 basis points in the last week to 4.91 per cent, provided voting at the Bank of England's most recent Monetary Policy Committee meeting shows policy-makers more united about the outlook for rates than in May. A new line-up voted for a quarter-point cut on 10 June, after Sushil Wadhwani replaced Alan Budd. Analysts have speculated that Wadhwani, a former fund management advisor, is more likely to favour cuts.

Ryan Shea, an economist at First Chicago said: "The key thing will be if any of the other guys switched from voting for unchanged last time, to voting for a cut. That would obviously raise expectations that another 25 bases point cut is in the offing."

Hopes for a further cut in rates are currently fading amid signs economic growth is quickening.

Still, in the gilt market "the mood is one of relief because of the good news coming from the US," said Sean Shepley, an economist at Credit Suisse First Boston. "A lot of trades that got extremely beaten up over the previous couple of weeks are now recovering."