Shares rally on US data

Cheer in the US filtered through to Europe

Stock markets on both sides of the Atlantic have received a welcome boost from better-than-expected US economic figures.

The (US) economy's not tipping back into recession, that's clear

Gerald Cohen, Merrill Lynch

Official figures showing falling claims for jobless benefits and record new home sales helped to persuade investors that the US economy was not as weak as had been feared.

In New York the Dow Jones index closed up 155.3 points at 7,997.12, a rise of nearly 2%.

In London the FTSE 100 index made its biggest closing gain since 15 August, closing up 154 points, or 4.2%, at 3,850.

In Frankfurt the Dax index rose by nearly 2%, while in Paris the Cac 40 jumped 6.3%.

No double-dip?

US data showed that unemployment claims had fallen lower than expected for the week ending 21 September, while the sale of new homes showed a surprising jump to levels not seen since 1992.

I remain convinced that we are on a path to 3%-3.5% real annual growth by the end of the year

Paul O'Neill, US Treasury Secretary

Orders for durable goods - which includes products intended to last at least three years - fell by 0.6% in August, but this was a smaller drop than had been forecast.

The figures helped to dispel fears that the US economy could be heading for a double-dip recession.

"The economy's not tipping back into recession, that's clear," said Gerald Cohen, a senior economist at Merrill Lynch in New York.

"The question is how strong or weak is growth."

O'Neill upbeat

Also on Thursday, US Treasury Secretary Paul O'Neill said he thought the US economy would be showing strong growth by the end of the year.

Mr O'Neill will be attending a meeting of finance ministers from the leading industrialised nations - the G7 - and said he would "report that I believe the US economy is on the bumpy road to recovery".

"I remain convinced that we are on a path to 3%-3.5% real annual growth by the end of the year."

London lifted

The positive news from the US helped to push share prices in London sharply higher, the FTSE index also helped by some good corporate news.

The rise in London shares was led by telecoms group BT which rose nearly 9% on an upbeat note from brokers at ABN Amro.

Banking shares recovered some of their previous losses, with Barclays leading the pack with a 6% gain.

Insurance companies also saw strong gains after a US judge ruled that the 11 September attacks would count as a single event, meaning insurance companies would need to make only one payment.

Despite the jubilant mood, analysts said the gains were as much a sign of nervousness as the market's recent slump.

"There's not really a change in sentiment just a change of tack. People are saying 'Let's go with the flow'," said Martin Dobson at NatWest Stockbrokers.