Footsie on brink of 4,000 mark

Dealers are braced for the FT-SE 100 index of leading shares to break through the psychologically important 4,000 mark next week after reaching another record high yesterday. The latest surge was fuelled by inflation and retail sales reports in the US that calmed worries of an imminent rise in American interest rates.

Footsie ended the week at 3,967.9, up 35.3 points yesterday, buoyed by another strong morning session on Wall Street.

The Dow Jones Industrial Average surged in early trading to break through the 5,800 barrier, topping its previous high of 5,796.1 set almost four months ago. It closed 66.58 ahead at 5,838.52.

In London the latest climb capped a buoyant run since the beginning of August, during which time the index has added more than 7 per cent. Dealers said yesterday, however, they were sceptical of the strength of the rally.

The 620 million shares that changed hands represented little more than the market's estimated break-even trading volume and traders expressed concern that the August rally had been largely technical with market-makers pushing up prices to cover their positions.

In the US, however, the bull run appeared to gain momentum with the New York Stock Exchange imposing its "downtick" rule after a 50-point rise in early dealings to limit certain types of computer-guided trading and check volatility.

Wall Street's fears that the Federal Reserve would raise US interest rates after its next meeting on 24 September evaporated after figures showing tame headline inflation and surprisingly weak retail sales last month. Analysts said yesterday that after the latest economic signals the Fed would not act until after November's presidential election, if then.

"The economy is close to full employment but there is no pick-up in inflationary pressures. It is the kind of economic performance we have not seen for a generation," said Chris Iggo, an economist at Barclays in New York.

The consumer price index climbed only 0.1 per cent in August, taking the headline inflation rate down to 2.9 per cent.

There was no sign of the expected increase in energy prices despite the impact of higher oil prices further back in the inflation chain. Prices for "apparel and upkeep" - clothes and personal goods - fell 1.4 per cent during the month and 1.5 per cent year on year.

Retail sales rose by only 0.2 per cent last month after falling in June and scarcely rising in July. In real terms they have fallen slightly since May.