Any German reduction will encourage a further round of European cuts and could put pressure on the Bank of England to lower its rates.
Naturally, interest-rate sensitive stocks led the advance although food retailers appeared to be unsettled by another set of cautious comments from Archie Norman, chief executive of the Asda supermarket chain. Asda, however, rose 1.75p to 66.25p.
Helped by a substantial portfolio trade, turnover reached 731.8 million, a remarkable performance for a day deep in the normally slumbering holiday season.
Although touching a new closing high, the FT-SE 100 index failed to top its best trading performance, reached last week. The FT-SE 250 index also ended below its best trading level but stretched to a new closing high.
The stock market was in rampant form from the opening bell, with New York's overnight record providing the platform for an interest rate-inspired surge. A strong New York opening increased confidence.
The MB-Caradon rights issue and deal with RTZ was also a cause for rejoicing. MB's profit performance and statement sent the shares up 24p to 336p. At one time they were down 13p. RTZ rose 15p to 708p.
Stores were firm although Kingfisher, down 9p at 669p, was under the whip of do-it-yourself worries. Ladbroke, off 3p at 205p, was lowered on a mixture of do-it-yourself and dividend concerns. The loss at the Boots-WH Smith-owned Do It All chain added to the uncertainty.
Builders and building material shares made headway. Housebuilder Bellwinch rose 6p to 40p inspired by a buy recommendation, thought to be from Credit Lyonnais Laing.
Drinks were in demand with Whitbread 'A' gaining 8p to 535p. Henderson Crosthwaite point to the group's growing food operations which now represent 36 per cent of managed house turnover against an industry average of 14 per cent.
It also pondered the possibility of Heineken, the Dutch group, forming a joint brewing venture with Whitbread along the lines of the Allied-Lyons and Carlsberg alliance.
Profits are forecast at pounds 251m against the pounds 219m achieved last time.
Scottish & Newcastle was also strong, up 9p at 473p, ahead of today's yearly meeting.
Publishing shares drew inspiration from the results from News Corporation and The Telegraph. The best gains were scored by The Telegraph, up 29p to 418p, Harrington Kilbride, 11p to 220p and United Newspapers, 7p to 574p.
Reuters, with its 5.84 per cent 1,400p tender buy-in closing, rose 18p to 1,516p.
Bank of Scotland drew strength from NatWest Securities support. The investment house lifted its profit forecast from pounds 217m to pounds 250m. The shares responded with an 8.5p gain to 169.5p. Standard Chartered recovered 13p to 938p, helped by SG Warburg support.
Oils remained strong on the Nigerian unrest. British Petroleum jumped 12p to 317.5p, Enterprise 12p to 448p and Shell 11p to 671.5p. Lasmo, with Warburg saying switch into Enterprise, gained 3p to 145p.
Little Fortune Oil was busily traded with talk of Far Eastern interest. The shares rose 0.25p to 4.25p.
Ramco Oil Services was little changed at 131p. Greig Middleton placed 485,000 shares at 125p. The proceeds will be used to reduce borrowings.
The power generators moved ahead as James Capel suggested buying. National Power advanced 8.5p to 365.5p and PowerGen 9.5p to 392.5p.
Capel support also lifted Thorn EMI 13p to 994p.
Frederick Cooper, the conglomerate, held at 74p ahead of a presentation to analysts.
With many companies reluctant, under the new Stock Exchange requirements, to be accused of giving analysts privileged information, Cooper released the main details of its presentation, which showed lower-than-expected debt and second-half sales ahead of the corresponding period of the previous year.
Results are due in October. Last year Cooper made pounds 3.4m. About pounds 3.7m is expected.
Stakis, the casino and hotel group, held at 65p. It has paid pounds 10.5m for three casinos at Northampton, Wolverhampton and Coventry.
Spring Ram Corporation, the hard-pressed bathroom and kitchen group, rose 5p to 73.5p with takeover rumours again circulating. Torday & Carlisle, the engineer, jumped 6p to 31p as two institutions acquired shares.
Financial shares continued to benefit from the market's upsurge. Perpetual jumped 56p to 778p and ShareLink, floated last month at 250p, reached 336p, up 5p.
On the property pitch Greycoat rose 1.5p to 22p. The preference shares were little changed at 46p. Pressure continues for the terms for the preference shares to be improved in the Postel rescue.
The convertible stock of the media group Aegis jumped 16p to 77p on the results.
The FT-SE 100 index closed near its best level of the day, up 29.9 points at 3,079.2, and the FT-SE 250 index rose 21.4 to 3,495.6. Turnover was 731.8 million shares with 31,865 bargains. The account ends on 3 September with settlement on 13 September. Gilts edged up.
Fidelity, the investment group with a habit of descending on seemingly bombed-out shares, continues to build up at Hartstone, the hosiery and leather group which suffered a dramatic reverse. It has picked up another 975,000 shares, lifting its interest to 10.1 per cent. When Hartstone's difficulties surfaced it had only a small holding. The shares, 272p last year, fell to 34p. They are are now 64p.
The management shake-up at Arthur Shaw continues. Ian Tickler has become chairman and Donald Crammond, his partner in a successful battle to win control of the building and engineering company, deputy chairman. Mr Tickler was ousted in April last year after a bitter boardroom power struggle. He said: 'All the hostilities and litigation are over and we can press on.' The shares are 39p.
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