FTSE 100 fails to keep its nerve as shares test 6,000

The index of shares in the UK's largest companies broke through the 6,000 barrier yesterday for the first time in five years, but then failed to maintain its momentum on concerns over future profits growth.

The FTSE 100 surged more than 50 points to 6,044, its highest since March 2001. But the blue-chip index ended up six points at 5999.4, a whisker below the psychologically important level.

Takeover fever gripped world markets, fuelling similar surges in share prices across major European markets.

The UK market has almost doubled since its trough of 3,287 in the run-up to the invasion of Iraq in March 2003, and is within sight of its all-time record of 6,930.

The index has jumped almost 8 per cent this year,hitting levels many strategists had forecast for the year-end, as incessant merger and acquisition activityswept through the market.

Traders latched on to a takeover bid for BAA, the airports operator, and plans by Vodafone to return £6bn of cash to shareholders. Jane Coffey, at Royal London Asset Management, said: "We have seen BOC, BPB, O2, Pilkington, P&O, Kesa and The Body Shop receiving cash bids, coupled with rising dividends, buy-backs and several notable special dividends. I expect to see the FTSE move towards 6,500 by year-end as these trends continue to support the market."

Kevin Gardiner, the global head of equity strategy, said the UK market had benefited from the outward-looking nature of its corporate sector. He said: "A lot of UK profits come from outside the UK, such as mining, pharma and whatever is left of engineering and capital goods. That explains why the divergence between UK profits growth and the UK economy."

He said stocks became vastly overvalued in 2000 at the peak of the "new economy nonsense". "We then saw them go equally crazily in the opposite direction, and you argue the market it still groping its way back to some middle of the road value," he added.

HSBC is sticking to its forecast for the FTSE to end the year at 6,100, but admitted the market appeared to be below what analysts would call fair value.

Some warned of the risk of a correction. Andy Brough, the manager of Schroder UK Mid 250 Fund, said: "It is not over for the UK market, but the easy money has been made, and we will need to be discriminating ahead. We are sticking to our 6,050 year-end forecast for now."