City experts predict FTSE will rise 10% this year

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City experts today predicted a near-10% rally for UK blue-chip stocks by the year end as London's FTSE 100 Index soared even further past the 5500 mark.

The Footsie lifted another 1% to more than 5560, with little sign of an end to the recent bounce back seen amid renewed investor confidence.

Analysts are forecasting the top flight could hit 6000 by the year end in what would be a marked turnaround on the sharp falls seen only a few weeks ago.

A robust half-year earnings season and pick-up in the pace of global merger and acquisition news has helped offset the double-dip recession fears that haunted the market earlier this summer.

The benchmark index has now risen by around 15% after hitting a year low in July and reached 5500 on Friday for the first time in four months.

A rebound today from the banking sector in response to the Basel III rules on capital reserves announced over the weekend added to recovery hopes sparked last week by better-than-expected jobs data in the US.

Analysts at Citi said they were sticking by forecasts for the FTSE to finish 2010 at 6000, while Brewin Dolphin market strategist Mike Lenhoff said the tide of investor sentiment had turned.

"The global economy is recovering - all we've seen is a loss of momentum, not a relapse and it's likely that next year the recovery will continue," he said.

"I wouldn't be surprised if the market did end the year near to 6000 - we'd need some serious piece of bad news to knock the market for six now."

British banks were among those seeing the biggest gains in London thanks to relief over the new European regulations, with UK players expected to fair well given tough capital rules already introduced on these shores.

Part-nationalised giants Lloyds Banking Group and Royal Bank of Scotland lifted 3% and 2% respectively, while HSBC gained 3% and Barclays was nearly 1% ahead.

Strong economic data in China also spurred the FTSE 100 on as the potential for greater Chinese demand boosted the heavily weighted mining sector.

But Mr Lenhoff said market fundamentals were all pointing in the right direction.

While the market wobbled late last month on a slew of worrying US and UK economic data, he said investors were taking heart from a resilient earnings season and the prospect of record low interest rates for some time to come.

The recent spate of takeover news surrounding the likes of oil explorer Dana Petroleum, restaurant group Carluccio's and engineering group Tomkins also suggests more confidence, he said.

"If the captains of industry felt downbeat about the prospects for their operating income, it's highly unlikely they'd engage in acquisitions," he said.

The Dow Jones Industrial Average on Wall Street is also sitting comfortably past the 10,000 level after last week's better economic indicators.

Risks remain, such as the potential for disappointing third quarter growth figures in the UK and US and further shocks from spending cuts, but markets appear less nervy.

Citi analysts said: "Easing macro trends suggest earnings estimates are too high. But this looks more than priced into markets."