European stock markets have also risen sharply after a clutch of major companies announced they had either finalised merger plans or were holding discussions about joining forces.

Christmas shopping spree

The prospect of a pre-Christmas shopping spree among some of Europe's largest quoted companies sent the FTSE 100 index of leading shares almost 2%, or 107 points, higher by 1335 GMT.

Shares have charged ahead, but is it a new bull run?

London shares were buoyed by news that engineers Siebe and BTR were planning a £7.6bn merger to create one of the UK's largest industrial groups.

Guardian Royal Exchange, one of the UK's largest insurance groups, has also confirmed it is considering its future and could be the subject of a takeover bid worth more than £3bn.

There is mounting speculation that Deutsche Bank of Germany will pay $10bn to buy Bankers Trust, the eighth largest US bank, in a deal which would create one of the largest financial groups in the world.

Music giant EMI could also fall prey to a takeover bid, although Bertelsmann, the German media and publishing colossus, appears to have ruled itself out of the bidding.

Share recovery

Another strong performance in London comes after a sharp rise in share prices last week.

Almost £20bn was added to the value of UK shares on Friday.

The latest rise in prices caps a resurgence in UK shares over the last few weeks which has led some analysts to predict another bull run, characterised by a sharp rise in stock markets.

Prices fell sharply in October amid fears of a global economic downturn.

Since then, however, investor confidence has returned following cuts in US and UK interest rates.

US bounce back

US shares are expected to get off to a lively start on Monday amid confirmation that leading Internet group America Online could be about to pounce on Netscape, which provides access to the worldwide computer network.

In the US the Dow Jones Industrial Average closed up 103.50 points on Friday, at 9,159.55, finishing the week 2.7% higher.

The index has now recovered nearly all of the losses it sustained in July and September.

It has risen 20% since early October and is now just 2% short of its record established in July.

Sustained recovery?

Wall Street traders seem optimistic that the Federal Reserve bank has moved quickly enough to cushion the American economy from the effects of economic turmoil around the world.

They now forecast that the expected slowdown next year will have a soft landing.

Moreover, the financial performance of American companies in the third quarter was generally better than expected.

The bears are always waiting in the background

However, some dealers remain sceptical about the market's ability to sustain the rise, and believe that we could still be in a bearish market, with shares suffering long term falls.

"Investors are running out of new stories to justify the stock market's high levels," said John Geraghty of North American Equity Services, a consulting firm.