More than pounds 7bn was added to the value of London shares as the FT-SE index rose by 36.3 points to close at 2,918.6, easily surpassing Monday's record close. Last month's record trading high of 2,900.1 was also easily beaten, with the market peaking at 2,922 in early afternoon trading.
The stock market was encouraged by growing optimism about the British economy, cheering company results and a strong performance by shares on Wall Street. Dealers are hopeful that German interest rates will fall soon, even if the Bundesbank - as most analysts expect - leaves rates unchanged at today's meeting of its policy-making council.
In its monthly monetary report, the Treasury said that the economy had been a little stronger than expected late last year and that evidence since then appeared to suggest the recession is ending.
Inflation was now at its lowest ebb in a generation, with the annual rate of retail goods inflation turning negative, the Treasury said. Retail goods inflation fell to minus 0.1 per cent in January, compared with 0.6 per cent in December.
Retail goods exclude volatile movements in prices for food, drink and tobacco but include household goods, clothing and footwear, personal goods, purchase of motor vehicles and leisure items.
Service price inflation also registered a sharp fall, to 6.4 per cent in January, after sticking at 7 per cent in the previous two months.
The Treasury's comments on the real economy imply that the Chancellor is likely to upgrade slightly his forecast for 1 per cent economic growth in 1993.
The significant improvement in manufacturers' order books disclosed in the Confederation of British Industry's February survey indicated 'a further improvement in the business climate', despite a setback to consumer confidence during the month, according to the Treasury.
Other pointers to an improving economy included a rebound in retail sales, 'which remain on an upward trend'.
The Treasury's tone helped the pound to rise against the mark, although it fell slightly against a stronger dollar. Sterling rose by 0.1 points against a basket of currencies to close at 77.2 per cent of its 1985 value. Long-dated gilts continued to rally, with the 9 per cent bond due 2008 closing 13 32 higher at 1078 32 .
The pound failed to break through resistance at DM2.39, ending the day 0.85 pfennigs higher at DM2.3850. Trading within the European exchange rate mechanism was quiet, despite small cuts in Irish and Danish interest rates.
Further cause for optimism about the economy came in insolvency figures from Touche Ross, the accountancy firm, showing that the downward trend in company failures had continued for the 11th consecutive month.
There were 404 receivership and administration appointments reported in the London and Edinburgh Gazettes last month. This was an increase on January's 374, but a significant drop on the 539 in February 1992. As a result, receiverships and administrations were running at about 90 a week, compared with 100 a week last year.
Christopher Morris, senior insolvency partner at Touche Ross, said: 'As the economy is still at an early stage of the long haul to recovery, it is not possible to predict with any certainty that the downward trend to business failure will continue. However, the lessons of past recessions will hopefully have been learnt.'
Regional trends still highlight a North/South divide. Scotland, the North and the Yorkshire and Humberside regions recorded more appointments in the first two months of the year, while there were significant reductions in the West Midlands, East Anglia and London and the South-east.
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