Market Report: Rally continues as some prepare for a surge to 4,000

The stock market has almost recovered from the disquieting lurch provoked by the stronger than expected US employment figures.

The FT-SE 100 index rose a further 26.9 points, making a two-day gain of 48.9. But the rally has been achieved in pathetically thin trading with most investors content to sit on the sidelines, awaiting developments.

New York influences have helped; so has evidence that last week's base rate cut was justified on economic grounds and was not merely a blatant political manoeuvre.

Some observers, no doubt with their fingers tightly crossed, believe there are signs shares could be preparing for the surge many anticipate will take Footsie to around the 4,000-point mark.

British Steel was the best performing blue chip. Ahead of year's figures on Monday the shares rose 6.5p to 176.5p. Profits could show a dramatic advance, nearly doubling to more than pounds 1bn. Current year's forecasts, however, are less impressive and a sharp decline is expected next year.

Retailers drew support from further indications of a growing feelgood factor in the high street, with Dixons up 15p to 526p and Kingfisher 11p at 620p.

British Airways responded to its long mooted alliance with American Airlines with a 9p gain to 562p, although there was some disappointment the link was not underlined by a share exchange.

The future composition of Footsie generated excitement with the Footsie steering committee due to decide on any changes today. Orange, the mobile telephone group, and United News & Media, following its deal with MAI, are favourites to join the blue chip club. Foreign & Colonial, the investment group, is a near certain casualty and Greenalls, the pub chain is also likely to be dropped. Courtaulds, 9.5p higher at 429p, and Lasmo, up 2.5p to 179.5p, are others on the border line.

Much of the market action was enjoyed in the lower divisions, with Singer & Friedlander, the merchant bank with more than pounds 4bn under management and controlling stockbroker Collins Stewart, adding 4p to 112p as Panmure Gordon put a buy sign on the shares.

Emap, the media group, enjoyed a NatWest Securities push, gaining 15p to 693p and Abbey National rose 8.5p to 550.5p as SBC Warburg repeated buy advice.

Tarmac unsettled builders and related shares with a surprise profit warning. Chairman Sir John Banham said first half figures would be "well down" but hoped for an improvement as the year progressed. The shares fell 4p to 112p.

Surrey Free Inns ended 17p higher at 287p as Regent Inns declared its shareholding at 6.63 per cent. Regent was little changed at 249p but Tom Cobleigh, another pub chain where there is the smell of bid action, gained 16p to 265p. Cafe Inns put on 17p at 185p.

Doeflex, the chemical group, gained 18p to 288p. It is buying BTP's polymer unit for pounds 5.9m and raising pounds 6.2m through a one-for-five 230p rights issue.

Celsis International, the healthcare group, edged forward 3.5p to 108.5p as Merrill Lynch said the shares should be closer to 200p. The securities house expects a further loss - pounds 3.3m - in the current year but profits of pounds 3.2m in the following year.

ViewInn produced maiden figures, a seven-month loss of pounds 167,000. The shares, floated at 100p at the start of the year, fell 10p to 615p.

Bilston & Battersea Enamels, a trinkets maker, climbed 5p to 80p. The shares have advanced from 33p in the past year. After two years of losses the company returned to the black and profits were up 43 per cent to pounds 310,000 in its last year. There is talk the group is continuing to trade well and could attract a predator.

Revelation, the luggage group was traded at 5.5p in its new slimeline form and Prism Rail, shunted on to the market at 100p last month, continued its remarkable headway, hitting 280p with a 55p gain.

Tradepoint, running the rival order-driven share market which has failed to make the progress expected, slumped 50p to 135p. Selling in Vancouver, where Tradepoint was first quoted, was behind the fall. One Canadian stockbroker is thought to be cutting a 300,000 stake and some private investors are thought to be worried by the company's intention to give up its Vancouver quote.

The special dividend shares of News International surged 83p to 291p as the parent News Corporation moved to mop up the minority, offering 1.33 News Corp preferred shares for each special dividend share.