FTSE 100 claws its way back to 5,000

The FTSE 100 index of leading British shares finally managed to cling on to the 5,000 level yesterday after a frenetic day of trading on the London market.

The index closed at 5000.0 after an unsuccessful attempt on Wednesday - but only after the after-hours auction of last-minute trades pushed it up from the 4999.5 it had hit at the official 4.30pm close. It was the first time it had closed at or above 5,000 for two and half years but is still 28 per cent below its December 1999 peak.

The rise brings the FTSE closer to the levels seen before a slowdown sparked by the dot.com collapse and the 11 September 2001 attacks. One trader said: "It's a fatuous figure. People get excited only because it has lots of noughts at the end."

Analysts in the City were divided over where the index would go from here. "I fear some small investors are about to lose some money," Justin Urquhart Stewart, a director at Seven Investment Management, said. "I would advise people not to enter the equity market as a result of what has happened today"

Mr Urquhart Stewart, who forecasts the index will end the year at 4,870, said the rush of money into mining and oil stocks was reminiscent of the speculative booms of the 1980s.

"Everyone is looking for the next Cairn Energy [which has risen 71 per cent in a year] but some of them are as likely to find Perrier as they are oil or gas." he said.

There was speculation that hedge funds were rushing to close their short positions before the market rose any higher.

The landmark was reached on a day that saw a host of FTSE companies - including BT, Barclays, Scottish Power and ICI - report better-than-expected results. Mike Lenhoff, at Brewin Dolphin, the broker, said there was a risk of profit-taking but he believed the market would rise another 200 points before trading sideways for the rest of the year. "Earnings have been good, companies have been producing better-than-expected dividends and there has been a lot of share buy-backs to support activity," he said, adding: "It is tending to look a little over-bought, but in the medium term I think the market is OK."

Roger Cursley, at Investec Securities, said the FTSE 100 was fundamentally "pretty cheap" both in absolute terms and on the basis of the ratio between prices and profits. "It could go a good deal higher because of the way the market is made up," he said, before forecasting a year-end figure of 5,400.

Mr Cursley said the index had benefited from its heavy weighting towards banks, oil and telecoms stocks - three sectors that have all done well in recent weeks.

Mr Lenhoff said his only concern would be from a sudden or sharp rise in interest rates on either side of the Atlantic if a spike in house prices or wages forced the Bank of England or the Federal Reserve to take action.

Yesterday the Bank's Monetary Policy Committee left the UK base rate unchanged at 4.75 for the sixth consecutive month. The decision had been widely expected but the MPC declined to issue a statement, leaving City economists split over whether the next move would be a cut or a rise.

The financial markets had ended last year thinking rates had peaked but a string of unexpectedly upbeat data on inflation, retail sales, wages and house prices have put a rate increase back on the agenda.

MasterCard, the credit card company, said yesterday the amount of spending on "plastic" over Christmas and the new year rose by 7 per cent on the previous year. But the British Retail Consortium said shop prices fell 1.54 per cent last month on a year earlier, the biggest annual drop since 1997.