Market Report: Celebratory mood in Paternoster Square

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The Independent Online

Shares in the London Stock Exchange celebrated their imminent promotion into the blue-chip index by reaching a five-year high. The group, which is set to finalise the detail of its £366m deal to buy 60 per cent of the clearing house LCH Clearnet tomorrow, saw its shares jump 27p to 1,371p.

The final decision and approval of the FTSE moves will be taken today – based on last night's closing prices – and the new constituents will start trading on 18 March.

The exchange's buoyancy was joined by ecstatic traders across London who witnessed the stock market reach a fresh five-year high and break the 6,400 mark. The FTSE 100 was up 86.32 points to 6,431.95 – a huge 1.36 per cent gain in a day. The FTSE 100 might have returned to pre-crisis levels, but it was nearly 500 points shy of its all-time high of the last day of 1999. Across the pond, the Dow Jones Industrial Average broke its all-time high of 14,198.

Relief swept the markets that China has left its growth targets in place, joining a run of good news including better-than-expected services data and hopes of more government stimulus.

But the peaks left others worrying that a fall is on the horizon, as the wider economy bares little resemblance to the performance of the markets. Brenda Kelly, a market analyst at the spreadbetter IG Group, said: "The wish of the bulls was finally realised with the Dow Jones Industrial Average surging northwards to hit a new intraday high. The question now is whether or not, in the cold light of underlying fundamentals, this level of positivity can be sustained and what degree of profit-taking there will be."

The stock market has its ups and downs, so punters looking at the long term should invest in bricks and mortar for solid protection against inflation, according to City boffins.

The analysts at HSBC reckon the best way to hedge against inflation is to pile into Reits – real estate investment trusts. They reckon that when inflation rises from a low level, Reits "outperform in several inflationary scenarios and never significantly underperform".

The scribblers think the current "dovish policy rhetoric poses inflationary risks that should not be ignored" and have added Reits to their global investment portfolio.

The UK Reit Hammerson also got a boost from Bank of America's analysts. They upgraded the Brent Cross owner to "buy" from "neutral", with a price target of 560p, saying that although retail is "not in vogue as the consumer outlook remains difficult", Hammerson has been more "proactive and is now firmly on the front foot". The shares responded by building up a 12.5p gain to 525p.

The top risers on the benchmark index were two stocks facing relegation in the quarterly reshuffle. Serco, the outsourcer which reported strong results, added 51.5p 630.5p, while the energy services firm John Wood was up 60p to 818p.

The pair will be making room for LSE and the budget airline group easyJet, whose shares flew up 26p to 1,048p.

Staying on the mid-caps, the oil explorer Ophir Energy jetted up 51.3p to 513p, rallying after a rights issue announced the day before to fund drilling programmes.

On AIM, the leather goods brand Mulberry, the Somerset purveyor of expensive handbags and famous for bags named after the model Alexa Chung and singer Lana Del Rey, was in fashion with traders who were spreading takeover rumours. Mulberry, up 70p to 1,300p, is one of the most illiquid stocks on the index, with more than 83 per cent out of public hands. The Singaporean businessman Ong Beng Seng and his wife, Christina, via various holding companies, control more than 56 per cent of the company's voting rights. Most dealers played down the vague rumours of private equity interest.

The Capital Spreads owner London Capital Group Holdings is no longer in talks to sell its business to rivals and announced it is "confident of its future under its new chief executive, Mark Slade" but the shares lost 8.25p to 36.5p.