Leading shares have recorded their biggest ever one day percentage gain, boosted by the US bailout of Citigroup, Chancellor Alistair Darling's plans to boost the UK economy with tax cuts and increased public spending, and a revival in mining shares.
The FTSE 100 index - which was already 281.9 points higher when Darling stood up - added another 90 points or so during the course of his speech. It ended at 4152.96, up 372 points or 9.84%. The move added around £90bn to the value of Britain's top 100 companies.
The previous record rise was 8.84% on 19 September this year, when the UK and US authorities moved to ban short selling of financial shares.
The jump also means that last week's 10.7% decline has been virtually recovered in just one day.
Chris Hossain at spread betters ODL Securities said:
"They often say that the first move is the wrong move in the markets. However the FTSE has strengthened throughout the afternoon following Darling's pre-budget statement to Parliament. Rising commodity and metals prices have underpinned the session, but it is heartening to see
that there were no real shocks to dent the impressive trading session."
The Citi news - involving the US government taking a $20bn stake in the bank - provided the main boost to markets, with the Dow Jones Industrial Average up around 300 points by the time London closed. The DAX in Germany and France's CAC also recorded gains of 10%.
But Darling's £20bn stimulus package did nothing to dent the mood, despite the Chancellor forecasting that the economy would contract between 0.75% and 1.25% next year and borrowing would hit £78bn this year and £11bn in 2009. Analysts took some encouragement from Darling's predictions of a return to growth in 2010.
Another major factor in the market surge was nothing to do with Citi or Darling. Metals prices jumped sharply - with copper up nearly 8% - on news that China was a net importer of base metals last month. This eased some of the recent fears of a sharp fall in demand from the region.
So eight of the top ten risers in the FTSE 100 were miners. Kazakhmys climbed 49.9 points to 229.75p, Eurasian Natural Resources Corporation jumped 55.25p to 257p and Xstrata added 153p to 808p. Rio Tinto, which was reportedly keen on getting Chinese investment if the hostile bid from BHP Billiton fails, rose 375p to £24.50.
A rise in the crude price lifted the oil majors, with BP up 50.75p at 513p and Royal Dutch Shell B shares 203p better at £16.40. Between them the two companies accounted for around 90 points of the FTSE 100's rise.
Barclays added 13.3p to 146.5p as it received shareholder approval for its controversial £7bn Middle Eastern fundraising, while Lloyds TSB closed 22.9p to 147.6p and its bid target HBOS added 12.7p to 86p. HSBC finished 24p higher at 650p, as the bank commented it might be interested in picking up some of Citigroup's assets. But Standard Chartered fell 34.5p to 725p - the major faller in the FTSE 100 - in the wake of its £1.8bn cash call.
Back with the pre-budget report, retailers rose after confirmation of the cut in VAT from 17.5% to 15%. Marks & Spencer added 14p to 218.25p, Kingfisher was 9.5p better at 118.1p, and Comet owner Kesa climbed 8.25p to 72.25p. But not everyone thought the VAT move would have much effect on the beleaguered retail sector. Nick Bubb at Pali International said:
"A big cut in VAT before Xmas would normally be something to get excited about, but if consumers are not going to want to pay full-price for anything any more, any benefit to gross margins will be swamped, particularly given the surge in import cost prices for next year."
Elsewhere Homeserve, the emergency cover and repair business, dropped 352p to 867p after it warned on full year profits. But power protection group Chloride jumped 10.75p to 126p after Friday's site visit to is factory in Bologna, Italy. In a buy note on Chloride, Investec said:
"Chloride's management delivered a reassuring and comprehensive overview of the business and its prospects. While the short-term outlook for trading remains distinctly unclear, the medium-term prospects are as strong as ever for Chloride's critical power equipment, which serves an increasingly wide range of geographical and industrial end markets. We retain our current forecasts and price target [of 175p] at this stage."
