Bargain hunters help shares recover ground

Share prices recovered ground yesterday after the freefall on Thursday that wiped £52bn off the value of Britain's leading companies.

Share prices recovered ground yesterday after the freefall on Thursday that wiped £52bn off the value of Britain's leading companies.

The FTSE 100 rose 87.5 points, or 1.7 per cent, to 5402.3, having dived 4.1 per cent the previous day, its biggest one-day decline for 13 years. Shares rose on Wall Street too, building on the recovery that started before the American stock market closed on Thursday.

Investors appeared to decide that the earlier plunge in prices had made some shares into bargains. Computer and telecoms companies enjoyed the biggest gains, having fallen the furthest the day before.

Steven Bell, chief economist at Deutsche Asset Management, said: "There is a huge contrast between the miraculous UK economy, where we have really never had it so good, and a stock market that is down 13 per cent this year."

The biggest companies on the London stock market, such as BP Amoco, Vodafone and GlaxoSmithKline, are global businesses whose profits depend on the American economy. London also tends to follow the US stock market, where one company after another has been issuing warnings that stalled growth means profits will be weaker than expected.

Even those British companies relatively unexposed to America's problems, such as retailers and high street banks, have been seeing their profits squeezed by increased competition and the Government's tougher competition policy.

The outlook for share prices remains uncertain, with investors on edge about the possibility of a fresh nosedive.

Optimists hopes that further reductions in interest rates will stabilise the markets. The US Federal Reserve cut rates on Tuesday by half a percentage point, the third such move in 11 weeks, but indirectly triggered the plunge because a bigger reduction had been anticipated. The European Central Bank is expected to reduce its rate, perhaps this week.

There will also be intense pressure on the Bank of England to cut rates when it next meets on 4 April. Although growth is still robust, Britain has the highest borrowing costs of the main economies, but the lowest inflation rate.