Sterling also ended the day marginally higher against both the dollar and the mark after a roller-coaster session on the foreign exchanges which at one point saw the pound down by nearly five pfennngs against the German currency.
However, it was not all joy. Utility and transport stocks took a beating as the prospect of Labour's windfall tax turned from a threat into a reality. Electricity and water stocks fell heavily as did shares in FirstBus, GoAhead and National Express as dealers fretted about tougher regulation of the bus industry under Labour.
Some economists also warned that equity markets might be underestimating the threat of Gordon Brown raising corporate taxes and slashing tax credits available to institutions in his first Budget, expected in early July.
Most analysts said the scale of Labour's victory meant there was now a possibility of it pursuing more radical policies than expected, but traders' natural instincts probably played at least as big a part.
David Kern, chief economist at NatWest, said base rates were likely to rise very soon, possibly as early as next week, to at least 6.25 per cent and possibly to 6.5 per cent to keep the lid on inflationary pressures.
He added that Gordon Brown's emergency Budget would probably produce a net fiscal tightening of pounds 2bn-pounds 3bn. But he also warned that if the new Chancellor reduced the tax credit available to pension funds and other tax-exempt institutions, it would increase the risk of a 10-15 per cent correction in share prices. That could wipe more than 400 points off the index.
Although higher corporate tax rates would hit company profits, that would be offset by a reduced need for higher interest rates.
Meanwhile Labour received a cautious welcome from the business community. Adair Turner, director general of the Confederation of British Industry, urged Mr Blair to consult with business before implementing his windfall tax, union recognition proposals and national minimum wage The CBI also called on Labour to combine its support for the Social Chapter with a campaign to ensure flexible labour markets across Europe.
Ann Robinson, director-general of the British Retail Consortium, said: "It is clear there is a real commitment to working with business."
Ruth Lea, head of policy at the traditionally right-wing Institute of Directors, said : "The Labour party has reasonably reassured us that they are in the business of working with business." But she added: "We still have objections to signing up to the Social Chapter and extending employment rights."
Mark Brown, head of strategy at Hoare Govett, said: "We can only guess how New Labour will respond to the pressures and conflict of government. The uncertainties are greater than perceived wisdom suggests."
The pound initially dived on foreign exchange markets after hitting its highest levels for almost five years earlier in the week. But it ended the day a pfennig higher at DM2.8030 having been as low as DM2.7560 at one point.
One of the new Chancellor's first acts could be to raise interest rates. The next monthly monetary meeting is scheduled for Wednesday and the Bank of England is expected to recommend once again a small increase.
This would disappoint exporters who fear that sterling could be driven even higher by increased interest rates. Yesterday the House Builders' Federation joined in the pleading against an increase in the cost of borrowing.
Roger Humber of the HBF said: "It is important that Gordon Brown understands that the country as a whole is not experiencing a housing market boom, and that the recovery of the market could be damaged by unnecessary increases in interest rates."Reuse content