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FTSE soars 5.1% on rate cut hopes

  he leading share index soared 5.1% early on Wednesday, as banks and commodity stocks tracked sharp gains in US and Japanese markets on hopes that central banks worldwide would cut interest rates again.

 

By 8:35 a.m., the FTSE 100 .FTSE was up 201.05 points at 4,127.43, after rising 1.9% on Tuesday. The index is still down more than 15% this month, on track for its biggest monthly fall since the crash of 1987. Banks were among the top performers on the FTSE 100, with the US Federal Reserve widely expected to cut interest rates from the current 1.5% at 6:15 p.m.

Japan could also follow the US in cutting interest rates this week, a source with knowledge of the matter said, in the latest steps to protect the world’s two largest economies from the global financial crisis. Barclays, HSBC, HBOS, Royal Bank of Scotland, Lloyds TSB and Standard Chartered advanced between 2.8 and 16.8%.

Tom Hougaard, chief market strategist at City Index Markets, said he expected the market could be on a month-long rally if the index would have a positive close to the week. “My thinking here is that we haven’t seen the kind of fears that we saw in 1987 or in 1929,” Hougaard said. “If there is anything that does worry (me) about my month-long rally, it’s that everyone is looking for it. Everyone has been holding out for this rally to come. We saw a huge short-covering bounce yesterday in the Dow, but it was just short-covering. I don’t think it was general buying. By Friday, we will know whether it will be real or we will head back down again.”

Wall Street marked its second-best day ever on Tuesday, with the Dow Jones industrial average up 10.9%, the S&P 500 up 10.8% and the Nasdaq Composite Index up 9.5%. In Asia, Japan’s Nikkei average surged 7.7%. But Bank of England policymaker Tim Besley said on Tuesday the UK economy was set to weaken further, and interest rate cuts were not a magic bullet as consumption might not respond to changes in borrowing costs.

Meanwhile, Chancellor Alistair Darling said governments must adapt their economic policies to tackle the fallout from the financial crisis, as speculation grows that Britain is preparing to abandon its fiscal rules limiting borrowing. Other financial stocks also gained sharply, with insurers Prudential, Aviva, Standard Life and Old Mutual rising between 3.4 and 22.8%.

 

OILS SURGE

Heavyweight energy stocks were the top-weighted gainers, tracking firmer crude prices. BP gained 6.5%, Royal Dutch Shell put on 6.4%, and BG Group added 10.6%. Miners were also in demand, with BHP Billiton, Rio Tinto, Xstrata, Eurasian Natural Resources, Anglo American and Vedanta Resources climbing 6.3 to 10.8%.

Retailers also tracked the market higher, with Marks & Spencer up 4.3% and Next adding 4.9%, despite the Times reporting that UK retailers faced a “challenging” run-up to Christmas after high street sales continued to fall in October, according to the Confederation of British Industry. (Reuters)