US and UK stocks hit new highs

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The Independent Online
SHARE PRICES soared to new records in New York and London yesterday, driven by a sharp rise in the value of financial stocks in New York.

The Dow Jones index had leapt nearly 258 points to 10,751.7 by midday, helping the FTSE 100 index to a record closing high of 6,515.3, up 95 points.

Better than expected results from Citigroup, the biggest US financial services group, and also Bank of America, sent financial shares higher on Wall Street, although Internet stocks suffered a sharp setback.

Citigroup's first quarter profits climbed 9 per cent to $2.36bn, a record. Operating income, excluding the $53m cost of the group's restructuring, rose 12 per cent.

Analysts said renewed optimism about the economy and corporate earnings growth was behind the breathtaking performance on Wall Street. The Dow has gained more than 16 per cent since the New Year.

The gains in New York sent the FTSE to its new high yesterday. But many UK analysts remained cautious about the potential for further increases in share prices.

"We are seeing bull market mania starting to overtake us. It has that flavour of 1987 about it," said Bob Semple of BT Alex Brown.

In contrast to the optimism about the US economy, fears about slow growth in Europe and the impact of war took the euro to its lowest level yet on the foreign exchanges yesterday.

Wim Duisenberg, president of the European Central Bank, said the weakness of the euro reflected slower growth in Europe relative to the US. In the longer run the currency would strengthen, he predicted, describing the ECB's exchange rate policy as one of "neglect".

The euro fell to a record low of under $1.06 after his remarks.

Mr Duisenberg told Euro MPs that the ECB's recent half point interest rate cut was meant to signal that it would not be repeated for the time being.

Separately John Townend, the Bank of England's director responsible for European matters, said UK interest rates needed to be around twice the European level.

"GDP growth this decade has been much faster than in our continental European partners... As a result we have required, and still do require, interest rates roughly twice the Continental level," he said. His comments helped boost the pound.

Sterling was also given a helping hand by new official figures which suggested that recent rises in the price of crude oil had begun to feed through to inflation. UK producer price data - released yesterday by the Office for National Statistics - was stronger than the markets had been expecting, and dampened hopes of further aggressive cuts in interest rates.

Producer input prices rose by a seasonally-adjusted 1.3 per cent last month, taking the annual rate to a two-and-a-half year high of minus 3.7 per cent.

Crude oil price increases were the main driver of the input price rises, analysts said, and were also a factor behind the stronger-than-expected jump in factory gate prices.

Factory gate prices rose by 0.6 per cent last month, with changes introduced in the March Budget adding as much as 0.4 per cent to the headline rate, according to analysts.

Separately, a survey by the consultants GfK showed UK consumer confidence did not change between March and April.

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