US rate cut hopes boost Footsie

By Geoff Foster for MailOnline
Updated: 02:44 EDT, 5 January 2006

A WAVE of interest rate optimism swept the Footsie above the magic 5,700 for the first time in four-and-a-half years. The catalyst was America and in particular the Federal Reserve, which may soon lower borrowing costs.

Wall Street jumped 129 points overnight and Far Eastern markets followed suit with hefty gains. So there was only one way for the premier London market to go - up. It marched 33.1 points forward to 5,714.6 and the FTSE 250 64.4 points to 8,957.7.

Analysts are expecting a change of stance once Fed chairman Alan Greenspan retires at the end of this month. It is thought his successor, the dovish Ben Bernanke, will keep rates on hold after 16 successive hikes and thereafter will get them moving in the opposite direction.

Having said that, a few bears yesterday warned that a strong December non-farm payroll (employment) report tomorrow would harm the chances of an early end to the cycle of rate rises.

Buoyant bulls are hopeful UK rates could be coming down again soon. City economists have predicted that 2006 could be another disappointing year for growth and with the housing and consumer sectors not recovering as fast as expected, the Bank of England could be tempted to cut rates by a quarter% in February.

Fashion retailer Next revived the hard-pressed retail sector, soaring 157p to 1680p. Analysts upgraded their recommendations and earnings forecasts following a much better-than-expected Christmas trading update.

Marks & Spencer, strongly tipped to be the only other seasonal winner, firmed 2½p to 499½p. Value investor Brandes Investment banked £160m after selling 32m shares to Deutsche Bank at 500p per share. Deutsche later sold the stock on a 'first come first served basis'.

Prevailing private equity bid hopes helped pic 'n' mix retailer Woolworths add 1¾p more to 39p. Another sizeable placing saw ABN Amro find a home for 6.7m shares in tobacco producer Gallaher (12½p easier at 871½p) with institutional investors at 871p.

Bullish noises from Investec helped Cable & Wireless buzz 5½p higher to 126¾p.The broker says that after a dreadfully slow start, there appears to be some signs of life within Local Loop Unbundling (LLU) in the UK. C&W's internet supplier Bulldog is a major investor in LLU and will be a major beneficiary of any recovery.

The Footsie's housebuilding champion Persimmon erected a further gain of 36p at 1297p on hopes mortgage rates will fall soon. Whispers persist George Wimpey (6½p cheaper at 468p) will soon attract a bid from a rival. In the short term, it's share price could be knocked further by tomorrow's trading statement which should confirm its US housebuilding operation is having a hard time of it.

This is Money 2006 predictions

• UK house prices
• World stock markets
• The UK stock market
• Midas share tips

Currently in the process of swallowing the remaining 21% of internet bank Egg, insurance giant Prudential rose 12½p further to 572p on rumours of a foreign bid. Dealers expect consolidation in the sector this year and believe Pru could be the first on the receiving end. Legal & General firmed 2¾p to 126½p and Aviva 18p to 726p.

Sir Alan Sugar's set-top box maker Amstrad rocketed to 184p and closed 24½p higher at 178p.Altium Securities upgraded its earnings forecasts and target price to 185p after the company said results for the year are likely to be 'significantly' ahead of current market expectations. Analyst Ian Robertson believes demand for Sky+ is very strong, with Amstrad gaining market share from a struggling Pace Micro, ½p off at 53p.

Semiconductor company CSR leapt 35p to 995p after ABN Amro raised its target price to 1170p from 915p.

A worrying report from house broker Deutsche Bank that shareholders face a near-60% cut in the 2006 dividend following the £430m sale of its Deluxe Film business, prompted selling of leisure group Rank, 10½p down at 283½p.

Appian Technology, whose Talon number-plate identification system forms part of the City of London's ring-of-steel cordon, was placed on Aim at 5p by broker JM Finn. Shares accelerated to 75/8p.

• AIM-listed Jubilee Platinum got the year off to a blistering start, rising 4p to 48¼p in active trading on news of a nickel find in Madagascar. Buyers piled in after hearing that it has found significantly higher nickel grades at its Antsahabe property, in the

northern section of its Londokomanana project.

Chief executive Colin Bird said the nickel grades are strong for a bulk mining target.