The recovery was largely technical and confined to blue chips. It was, however, enough to reinforce hopes that the stock market could enjoy a Budget rally ahead of the traditional Christmas advance, which would push the FT-SE 100 index to around 3,500 points by the year-end.
The index closed 54.2 points higher - its best gain for nearly three months -at 3,083.8. Datastream calculated that the advance added pounds 10.76bn to shares, pushing the market's valuation to pounds 770bn.
US figures caused the excitement. Economic growth was higher than expected but the sting was removed by a low inflation content.
With the dollar and US bonds up sharply, oversold equities on both sides of the Atlantic were suddenly squeezed up in stock-starved markets, as bears were forced to make humiliating runs for cover.
Government stocks, no doubt to the joy of Eddie George, joined the party, up by nearly a point.
London's turnover was a miserable 508.9 million, indicating that securities houses suffered yet another day of losses.
Indeed for many the advance was a hollow event. 'I'm bemused. I've not had a single buying order', one private client stockbroker said.
US interest rates are still expected to be forced higher but this week's comments by the Chancellor and the Governor of the Bank of England have strengthened hopes that domestic money rates will be held and base rates will not reach the feared 7 per cent by the end of the year.
The signalled General Electric Co. strike at VSEL also helped sentiment. GEC moved quickly to establish an advantage, buying 13.7 per cent of the submarine maker through the market at 1,400p.
Smith New Court took the view that rival bidder British Aerospace will come back with an offer up to 1,550p. It could, it argued, afford to go even higher.
GEC ended 7.5p higher at 278p; BAe, citing the monopoly implications of the GEC offer, dived 16p to 457p. VSEL jumped 72p to 1,395p. The failure to top the GEC 1,400p offer indicates that the market has taken the view that Lord Weinstock will emerge victorious.
The VSEL battle helped other defence shares. Vosper Thornycroft improved 14p to 719p; Vickers had to be content with a 1p gain to 167p.
Rank Organisation's presentation to analysts was positive, but failed to impress the shares. They fell 10.5p to 399p although Smith lifted its forecast pounds 10m to pounds 372m.
Carlton Communications advanced 28p to 878p, drawing encouragement from Rank's comments that its video duplication volume was up nearly 50 per cent with improved margins.
Zeneca edged forward 3.5p to 849p following its meeting with analysts.
Excitement over Unigate's rumoured sale of its 33 per cent interest in Nutricia, the Dutch group, subsided. After touching 346p the shares closed 1p higher at 338p.
Scottish Hydro-Electric, rejecting the Offer price controls, gained 5p to 318p; Scottish Power, accepting the Offer deal, went from 349p to 357p.
Reuters, the information group, rose 30p to 477p following its third-quarter figures.
British Gas flared 8.5p to 293p; NatWest Securities says the shares have underperformed for a year and are now a buy.
IMI, the engineer, gained 5p to 300p after James Capel said earnings could double by 1997. Hays, the business support group, added 11p to 286p as Smith said buy after meeting the group.
Bullers, the giftware and television services group, hardened 1p to 24.5p.
It duly announced a one-for-seven rights issue at 20p. The pounds 1.3m will be used to pay off borrowings of pounds 523,000 and for working capital.
There is an interim loss of pounds 402,000.
Aviva Petroleum, due to start producing around 20,000 barrels a day at its Colombian development early next year, rose 7p to 60p. GM Firth, the steel group, put on 1p to 23.5p as new chairman Sir Alan Thomas started meeting City investors.
Furniture maker Cornwell Parker dropped 5p to 124p following a warning that first-half profits would be 'well below' last year's pounds 1.3m.
The FT-SE 100 index jumped 54.2 points to 3,083.8; the supporting FT-SE 250 index rose 21.5 to 3,501.6. Turnover was 509.9 million shares with 22,467 bargains recorded. Government stocks gained nearly a point.
Geoff Brown, chief executive of CentreGold, the computer games group, has cut his stake to 29.07 per cent just after announcing a 48 per cent profit advance to pounds 4m. He cashed in nearly 1.4 million shares at 98p.
Although living up to expectations, CG remains one of the new-issue flops.
The shares came to market a year ago at 125p. They are now 105p.
Biocure Holdings, an obscure, loss-making health group attempting to develop a range of wound-healing treatments, is giving its supporters an anxious time. On Thursday the shares, 68p a year ago, crashed 11p to a 19p low.
Yesterday they rose 7p to 26p. The group has made losses since 1988 and there are fears of a rights issue to finance further developments.
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