Global markets surge on fresh hope

Stock markets in Britain, France, Germany and Japan broke through key psychological barriers yesterday as financial markets rallied across the world.

Positive news on corporate earnings boosted hopes that the worst may be over after a three-year slump in world share prices. In London the FTSE 100 index closed up 53 points, or 1.4 per cent, at 4,006, above the important 4,000-point level for the first time since 6 January.

On the Paris stock market, the CAC index rose above 3,000 points thanks to a 2 per cent surge, while in Frankfurt the DAX index rose more than 1 per cent to clear 3,000. In Tokyo the Nikkei-225 put on 2.2 per cent to 8,083 and went through the key 8,000 level for the first time in a month.

Wall Street also enjoyed a bounce after the widely expected decision by the US Federal Reserve to keep interest rates on hold late last night.

The Dow Jones ended up 57 at 8,588.4, its highest since 17 January, while the technology dominated Nasdaq index rose 1.3 per cent to 1,523.7, taking it back to the levels of last June.

William Hummer, senior vice president at Wayne Hummer Investments, said: "I think this will prove very reassuring and soothing to the market. If they had cut rates, the perception would be that the Fed saw trouble ahead in the economy."

Yesterday's move means the FTSE 100 has risen by more than 20 per cent since its lowest point this year in early March, a few days before the war on Iraq began.

The London market built on solid gains made on Friday and optimism was boosted further by positive news that Britain's services sector had returned to growth following the fall of Saddam Hussein's regime in Iraq.

"Confidence in the market is building, and breaking that 4,000 level was quite important," one trader said.

Anthony Nutt, the manager of the Jupiter High Income fund, said the FTSE 100 could easily hit 4,400 by the end of June even though retail investors had yet to be tempted back into the market

"The market is still bouncing and most retail investors have not participated in the fall and rise of the markets recently," he told Citywire.

"There is still the fear that the conflict in Iraq is not over and that chapter will not be closed until Saddam Hussein is completely off the agenda."

A survey of fund managers published yesterday showed that nine out of 10 believe the UK stock market will deliver positive returns over the next 12 months. This is up from eight out of 10 in March and just seven out of 10 at the start of the year.

Some European analysts believe shares are on the brink of a new bull market, in the wake of a 20 per cent rise in the broad Eurotop 30 index. But doubts remain in many quarters. Lars Wohlers of WestLB Panmure said: "There are still question marks hanging over this rally and the fundamental backdrop to it."

Hopes of a revival in companies' profit margins was boosted by a further fall in oil prices. In New York crude prices fell 75 cents, or 2.8 per cent, to $25.74 a barrel compared with a peak of $39.99 during the Iraqi war.

However, the rise on the New York stock markets did little for the dollar, which hit fresh four-year lows against the euro. The euro's 7.3 per cent surge in the last month against the dollar reflects investor concerns that the US economy, the driver of the global economy, is stuttering.

The interest rate decision did little to lift the dollar: "The Fed is keeping the door open for another rate cut, which is negative for the dollar," one analyst said. The euro hit a four-year high of $1.1453 yesterday, taking it a step closer to its opening value of $1.1747 on 4 January 1999. Sterling also fell to four-year lows against the euro yesterday, trading at 70.9p.