The FTSE 100 came back from early highs on profit-taking but still posted a 1.6% rise, bolstered by Wall Street's rally and hopes of an aggressive rate cut from the Bank of England.

The FTSE 100 climbed 87 to 5525.5 Broader indices enjoyed double-digit gains while FTSE 250 kept pace with the senior index.

Market volume amounted to 750m shares, with trade in Shell and BP accounting for 46m and 22m respectively ahead of what are expected to be poor third quarter results this week.

"The markets have been squeezed due to a shortage of stock," said Richard Grossman, a stockbroker at Redmayne Bentley.

"People are looking for value in the FTSE 250, which is more domestically oriented, while the leaders are doing well because of strength in the US," he suggested.

Cash-rich investors continue to look for a vehicle away from overvalued bonds, while funds that have missed the recent rally have been pressured into joining now rather than waiting for a pull-back that may never happen.

In New York, follow-through buying lifted the Dow after October's record points gain, despite the NAPM index which pointed to a slowdown in manu- facturing activity.

The Dow Jones index was up 1% or 91 points at 8684 by the London close.

US investors are hopeful that the economy will weather the turmoil that has hit other world economies without a significant slowdown, and they are optimistic that global markets are stabilising.

"The US has completed today's hat-trick of three softer than anticipated manufacturing figures, indicating manufacturing contraction in the US, UK and Germany," noted Marian Bell, head of Treasury research at the Royal Bank of Scotland.

"The UK Purchasing Managers Index, weak across the board, will add to expectations of a rate cut Thursday," she said.

Shares in Great Universal Stores were the best blue chip performers, rising 7% after the company confirmed it has been approached by parties keen on buying the two businesses within its finance division - General Guarantee Finance and Highway Vehicle Management.

Elsewhere, telecom stocks were well represented. Orange rose 6.5% after investors took heed of a 'buy' recommendation in the 'Express on Sunday', which said the company offers the lowest industry churn rate and highly competitive prices compared to Cellnet.

Securicor climbed 4.5% after it said it is forming a parcel distribution joint venture with Deutsche Post.

Vodafone and COLT Telecom improved on sector strength.

On the downside, BAT dropped 6.2% following disappointing results from its Brazilian subsidiary Souza Cruz.