German interest rate cut boosts stock market

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THE STOCK MARKET leapt to a record high and the pound jumped sharply against the German mark yesterday after the Bundesbank unexpectedly nudged down German interest rates, writes Robert Chote.

The move raised hopes that the Bundesbank will cut its important discount interest rate from 8 per cent on 18 March or 1 April. That would help to relieve tension within the European exchange rate mechanism and might allow rate cuts elsewhere in Europe.

The FT-SE index rose by 17.3 points in busy trading to close at an all-time high of 2,922.1. Dealers said the cut in the German 'repo' interest rate - which closely influences market rates - from 8.49 to 8.25 per cent made it easier for Britain to consider a base rate cut.

But the Treasury and Bank of England have hinted strongly in recent days that they do not intend to use a German rates cut to justify a reduction in British base rate to accompany the Budget on 16 March.

German rate cut, page 17

Mark weakens, page 17