Markets recover on back of positive corporate news

Stock markets staged a recovery on both sides of the Atlantic yesterday, buoyed by positive corporate news from the US and fresh signs that the UK economy is emerging from a period of stagnation.

However, the rise in share prices after last week's heavy markdowns was not enough to prevent a string of investment banks slashing their year-end forecasts for the New York and London markets.

In London, the FTSE 100 index of leading shares recorded its biggest one-day rise since November, closing 126 points higher at 4756.8 ­ a rise of 2.7 per cent. The Dow Jones Industrial Average, meanwhile, was finished the day 213 points higher.

The UK market was cheered by a combination of figures showing that domestic productivity in May grew at its fastest rate for two-and-a-half years and the strong opening on Wall Street.

There was good news from the fast food giant McDonald's, which forecast that quarterly earnings would outstrip the most bullish analysts' forecasts, while Qwest Communciations jumped 20 per cent on news of management changes at the beleagured telecoms company.

The sharp rise in the FTSE 100 index helped it claw back some of last week's 6 per cent drop in value although traders warned that confidence remained brittle and the rally could easily peter out.

The recovery in London share prices was led by oil, pharmaceuticals and telecoms stocks. Sentiment was helped by the latest Lloyds TSB/Institute of Management Services productivity index showing the biggest rise since October 1999. The performance of both the manufacturing and the service sectors improved.

Trevor Williams, the chief economist at Lloyds TSB's, said that the results chimed with better-than-expected manufacturing output figures last week and suggested that corporate profits should begin to recover in the fourth quarter.

In the US, bargain hunters helped the technology-driven Nasdaq Composite index closed up 3.2 per cent at 1553. The Dow, meanwhile, ended 2.2 per cent higher at 9,687 points and the more broadly based Standard & Poor's 500 index gained 2.8 per cent to close at 1,036 points.

Despite the temporary respite for London shares, CSFB, Merrill Lynch, HSBC, NatWest and SG Securities have all either lowered their year-end forecasts or are in the throes of revising their numbers.

Merrill Lynch, one of the more bearish banks, said that even its year-end target for the FTSE 100 on 5,500 might prove too ambitious. CSFB is preparing a second downward revision having already cut its forecast from 5,900 to 5,700 and NatWest expects to slice 300 points off its forecast of 5,800.

Steve Russell, equity analyst at HSBC, said his bank's forecast of 5,700 could be slashed to 5,200 if corporate profits continued to disappoint.