FTSE 100 records for three years


Click to follow
The Independent Online

London's leading shares index saw its best weekly performance in nearly three years today as investors were spurred on by new moves from political leaders to resolve the eurozone debt crisis.

Britain's top 100 listed companies added £100 billion to their value this week as the market surged 7.4% - the biggest gain since the second week of January 2009.

The FTSE 100 index was 1.1% higher on the day, closing at 5552.29, after German Chancellor Angela Merkel called for far-reaching regulatory change in the European Union to ensure a more stable economic future.

Mrs Merkel said the EU treaty must be changed to bring about closer fiscal union in the 17-nation eurozone to enforce stricter financial control.

Elsewhere, Prime Minister David Cameron called for "a big bazooka approach" to the crisis following a meeting with French President Nicolas Sarkozy ahead of a crucial summit in Brussels on December 9.

Meanwhile, Citigroup Global Markets underlined confidence as it maintained its forecast for the 2012 year-end price for the FTSE 100 at 6200, despite heightened market volatility in recent weeks.

The market, lifted by the perceived progress in the eurozone, was given an extra boost on Wednesday when six central banks, including the Bank of England, announced emergency moves to free up the credit flow to businesses and households.

There was further cheer on the other side of the Atlantic as the US jobless rate fell to 8.6%, its lowest level since March 2009 and lower than City expectations of no change at 9%.

But David Jones, chief market strategist at IG Index, warned there were still nagging doubts over the markets' enthusiasm.

He said: "We have been here before - where the market takes its lead from political speeches but ultimately ends up being disappointed when policy doesn't follow as quickly."

The improved sentiment in Europe, combined with the central bank action to improve dollar liquidity, has also helped ease implied borrowing costs for European countries which have come under pressure in recent weeks.

Italy saw the yield on 10-year bonds fall back below the critical 7% level to around 6.5%, while Spain saw the equivalent yield fall back to 5.5%, in a sign that investors' confidence in the country's finances is being restored.

The banking sector was one of the main beneficiaries of the change in mood, with Barclays hitting the top of the FTSE risers' board with an 8% gain, Lloyds Banking Group advancing 6% and Royal Bank of Scotland adding 5%.

However, traders warned that, if the rally was to continue, political leaders would have to deliver a credible plan to resolve the eurozone's problems at the summit next Friday.

David White, trader at Spreadex, said: "Given recent history, and in spite of a concerted effort to help make the solutions to Europe's debt crisis global, bulls would be forgiven for worrying."

The pound fell to 1.16 against the euro as the single currency was boosted by the improved sentiment, while metal and oil prices also rose.