Shares break another record as sterling rises

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The Independent Online
Shares in London ended at another record high yesterday, while the pound surged more than two pfennigs to reach its highest level against the German mark since the end of 1994.

The FTSE 100 index ended more than 12 points higher at 4,050.8. It was propelled by an early surge in shares on Wall Street, later reversed by profit-taking. The Dow Jones index was almost 5 points up at 6,014.85 by mid-morning.

Although economic figures due out on both sides of the Atlantic this week and next meant trading was light and cautious, many analysts were very optimistic about the combination of solid growth and low inflation in the US and UK. "Everything looks like economic Nirvana," said Joseph LaVorgna, an economist at the Wall Street investment bank Lehman Brothers.

Figures out today are expected to show a further decline in the number of people claiming unemployment benefit and a small improvement in government borrowing last month in the UK. US figures for inflation today and industrial output tomorrow are also likely to encourage the view that things could not be better on the economic front.

Both currencies strengthened, with the pound rising to close at DM2.4378. Its index against a range of currencies was up 0.6 at 88.6. The dollar was slightly higher against the yen and up more than a pfennig against the mark at DM1.5292 by midday.

"There is a lot of speculative interest in the pound stemming from the view that it has lagged behind the other peripheral currencies in Europe," said Paul Meggyesi, an analyst at Deutsche Morgan Grenfell.

Adrian Schmidt at Chase Manhattan agreed: "It is one of the few currencies in Europe with any scope to move," he said. He predicted sterling will climb to DM2.50, although warned that it will struggle to stay there when the economic recovery on the Continent gets under way.

The financial markets still expect the next move in interest rates to be upwards, whereas they see rates on the Continent remaining unchanged against the background of tough fiscal policies, high unemployment and weak growth.

The surge in the oil price to a post-Gulf War high has also helped sterling, still just about considered a petro-currency. The price of the benchmark Brent crude future touched $25 a barrel yesterday after new reports that Iraqi tanks were on the move.

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