Share prices surge to fresh six-year high

A surge in stock markets across the world took the leading index of UK shares to its highest level for six years in an upbeat start to the new year.

The FTSE 100 index of UK blue chips ended the first trading day of 2007 up 1.5 per cent, closing at its highest level since January 2001.

Shares in oil companies rose on the back of a jump in crude prices, while financial services companies benefited as traders placed bets on the possible winners this year.

The FTSE 100 closed up 90.1 points at 6,310.9, its highest since 30 January 2001, having hit an intra-day high of 6,312.5. Oil and gas and mining companies, along with banks, insurers and general retailers, all posted rises of between 1 and 2 per cent.

But the increase was chalked up in thin trade with many major players still not back from the Christmas and new year break, while Wall Street will not reopen until today.

Mike Lenhoff, chief strategist at Brewin Dolphin Securities, said: "The market has not discriminated between sectors because everyone who has come in today has seen that the tone is upbeat. We need the return of Wall Street to see what is really happening and I think it could run out of puff as there is a general reappraisal of US interest rates."

The Dow Jones ended the year on a record high but many analysts expect it to suffer from a bout of profit-taking when it reopens today after a day of official mourning for the late President Ford.

For now, the bullish mood was shared across almost all markets that were open for business. The FTSEurofirst 300 index of top European shares, which gained 16 per cent in 2006, ended up 1.2 per cent at 1,501, its highest close since February 2001.

All major European markets were up by at least 1 per cent. Asian stocks rose the most in almost two weeks as benchmark indices in Australia, Hong Kong and Indonesia all set new highs.

The dollar began 2007 where it ended 2006, with sharp falls across most major currencies. The pound built on its 14 per cent rise against the dollar last year with a 0.7 per cent rise on the day to $1.9738. This put it closer to breaching the two-dollar barrier for the first time since 1992.

The dollar fell 0.6 per cent against the euro to $1.3278 and was down 0.2 per cent against the Japanese currency at 118.80 yen. The fall in the dollar pushed up the price of gold to a three-week high of $640.30 an ounce. Oil rose above $61 a barrel as Iran refused to comply with a United Nations resolution to stop its nuclear programme, but mild weather in the US wiped out the gains in late trading.

Some analysts warned markets were too optimistic in pricing in further gains with little risk of a major downturn. Tim Drayson at ABN-Amro, said: "Many markets seem to expect the current favour-able macroeconomic environment to be sustained almost indefinitely and that worries me. For this year, I think a nasty US inflation surprise is the biggest risk."

Mr Lenhoff agreed, saying he had lowered his forecasts for Wall Street. "The futures market has gone off the idea that rates will be cut," he said. "It may not be long before it reckons that the next move will be up."