The UK's FTSE-100 index of leading shares surged to its highest close for six years yesterday, boosted by bid excitement across Europe with telecoms group Cable & Wireless and Currys owner DSG International the latest UK subjects of takeover speculation.
The pan-European FTSEurofirst 300 index also posted a fresh six-year closing best. ScottishPower's prospective Spanish owner, Iberdrola, Spain's Gas Natural, and German giant E.ON were all buoyed by general excitement about consolidation among energy utilities, which appeared to result partly from the growing likelihood that E.ON's bid for Spanish electricity company Endesa will overcome months of bureaucratic and political hurdles.
However, as stock markets rose further, some experts warned the party could not go on forever.
UK banking stocks gained, apparently on hopes that the Bank of England's Monetary Policy Committee would hold off from raising UK base rates again on Thursday. However, the knife-edge nature of this week's call was writ large in a simultaneous rise in sterling, on the idea the MPC might just follow January's surprise quarter-point increase in base rates with a rise from 5.25% to 5.5% this week.
The FTSE-100 climbed to levels not seen since December 2000. It closed up 28.4 points at 6346.3, hitting a session peak of 6369.7. Cable & Wireless jumped 3% to 179.5p on rumours of a bid from Deutsche Telekom. DSG, Europe's biggest electrical retailer, rose 3.75p to 173.75p on vague talk of interest from private equity groups and perhaps a management buy-out.
Sainsbury, already being stalked by an alliance of Kohlberg Kravis Roberts, Blackstone, and CVC, rose another 6.5p to 516p on talk this trio could be challenged by rival venture capitalists Cinven and Texas Pacific.
The FTSEurofirst 300 closed up 0.31% at 1543.08 points, its highest close since January 31, 2001. New York's Dow Jones Industrial Average has meanwhile been hitting all-time highs with some regularity in recent times.
Sandy Nairn, chief executive of fund manager Edinburgh Partners, said last night: "In general, markets look to be on the expensive side of fair value to me - not the cheap side. The most notable feature is the lack of attention being paid to risk. That is the thing that would give me some cause for concern."
He added that emerging markets "look proportionately more expensive". However, he believed the lack of recognition of risk applied across asset classes, given the pricing of low versus high-quality equities, bonds, and property. Nairn was also unconvinced about the momentum of the US and believed, just because the sharp slowdown feared by some had not arisen, this did not mean that growth in the world's largest economy was going to carry on regardless.
He said: "For you to believe that US economic growth is going to continue at these sort of levels, you have to assume the US can continue to run a negative savings rate, and have corporate profits at the highest ratio to GDP (gross domestic product)...within living memory. I don't believe either of these things." Nairn added: "It seems to me that, if an economy looks like something needs to happen and it doesn't happen relatively quickly, the stock markets stop worrying about it and say, That's fine', whereas an economist's view of it is, if something looks like it needs to happen and doesn't happen any time soon, it makes it more likely rather than less, so you worry about it more."
However, he emphasised he was not advocating wholesale stock disposals by declaring: "It is not a negative picture in that you must sell everything now."
Sterling was last night up more than one cent against the dollar at around $1.9710, with expectations of a near-term UK interest rate rise bolstered by a survey from the British Retail Consortium showing this sector enjoyed its strongest annual sales growth for any January since 2004.
Rate fears were also fuelled by electronic payments specialist Voca, which said its measure of annual growth in take-home pay rose from 2.9% in December to 3.3% last month. The MPC has been worried high consumer price inflation might fuel wage settlements and cause an upward spiral.
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