Top shares have raced to their highest level for over two years as BHP Billiton, other miners and oil stocks are buoyed by the prospect that commodity prices will remain robust, and as takeover activity provides an additional spark elsewhere.
Mid-cap food retailer Big Food jumped 11 per cent to 102-3/4 pence after it said it had received a bid approach at 110 pence a share from Baugur, the acquisitive Icelandic retailer that already owns a 22 per cent stake.
The FTSE 100 share index finished up 34.5 points, or 0.8 per cent, at 4,591 after hitting 4,602.1, its highest level since July 2002. The index rose one per cent over the week and has rallied 6.7 per cent in the past five weeks.
"We've had a couple of goes at it before and not gone through so it looks like there's some pent-up momentum here," said Roger Cursley, strategist at brokerage Investec. "There are still concerns about oil, house prices, terrorism and so on, but the market is responding to a pretty good company results season and being fundamentally cheap."
Dealers said the advance was helped by the expiry of FTSE 100 futures and options at 10.30 a.m. as talk swirled that some investors were covering short FTSE positions. The derivatives expiry helped swell the day's volume to over 2.5 billion shares. Gains were extended after a bright start on Wall Street.
The advance was spread wide, and seven of the top 100 stocks hit their highest level for at least five years or since they listed - miners BHP Billiton and Xstrata; retailers GUS and Next; and publisher Yell, cruises operator Carnival and InterContinental Hotels.
"It's been well supported all this week and there's enough money now being put to work for it to push on," one dealer said. "We've taken a few knocks, whether it's been the AstraZeneca drug news or HBOS not bidding for Abbey, and the market's weathered them quite easily."
He said the reinvestment of dividend payouts and a reduction of cash holdings after the summer lull had been supportive.
BHP Billiton topped the FTSE leaderboard with a 3.5 per cent rise and peer Rio Tinto added 2.7 per cent after Goldman Sachs JBWere said in a report that Australian iron ore producers were likely to win a big price rise as China's demand for steel defied expectations.
Oils stocks were led by BP, up 1.7 per cent after oil prices gained on concerns that storms in the Gulf of Mexico might disrupt US oil stock building ahead of winter and Dresdner Kleinwort Wasserstein upgraded BP to "add" from "reduce", saying the potential restart of a share buyback programme today may boost its shares.
"Given the continued high level of oil prices, we expect BP to resume its buyback programme with a vengeance," Dresdner said.
Carnival firmed 2.1 per cent after the world's biggest cruise operator reported a jump in third quarter profit that beat analysts' expectations.
But telecoms stocks missed out on the rally. Mobile operator mmO2 dropped 0.8 per cent after Lehman Brothers said it expected UK mobile price competition to intensify in the coming months.
Cable & Wireless shed 2.7 per cent after it announced plans to invest millions of pounds in the UK market for high-speed web access. Investec also cut its rating on the stock to "reduce", citing concern over the company's UK trading performance before half-year results.