FTSE 100 enjoys strongest quarter in history

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The FTSE 100 index of leading shares last night registered its strongest quarter since its inception in 1984. The index, which closed 0.5 per cent down at 5,133.9, rose by almost 21 per cent between July and September as fears of an economic collapse gave way to hopes of a recovery.

The previous record was set in 1987, when the index gained 19 per cent between January and March, said the FTSE Group, which compiles the listing of blue-chip shares.

Since reaching its nadir in March, the Footsie is up by about 46 per cent, although it remains below the levels seen before Lehman Brothers, the US investment banking giant, filed for bankruptcy in September 2008. Broadly considered, market watchers attribute the gains to the demand precipitated by companies moving to rebuild inventories that were allowed to dwindle as economic storm clouds gathered and the financial crisis deepened last year, and to the raft of stimulus measures introduced by governments around the world.

The index is expected to trade at around current levels until the end of the year, according to a recent Reuters poll of strategists.

Robert Quinn, a European equity strategist at Standard & Poor's, said the "recovery impulse" behind recent gains was still evident, as traders look to the prospect of better times in 2010. "If we go back from the end of March to where we are, I think we have seen two different rallies," he said. "First, there was a stabilisation rally until June. And since then the gains have been largely predicated on what 2010 is going to look like."

Notwithstanding the optimism in some quarters, the bears have begun to warn about a new stock market "bubble". Earlier this month, the hedge fund manager Crispin Odey said the Bank of England's moves to increase the money supply had driven investors into equities, tipping markets into a "bubble phase" that could last until the end of the year.

"At such moments, valuations are less important," he added.