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• Traders return from bank holiday weekend in buying mood
• FTSE 100 up 2.5% on the day at highest since January
The London stockmarket hit its highest level in almost four months this morning as the rally which began eight weeks ago showed little sign of petering out.
The FTSE 100 leapt by 106 points in early trading in London to 4349, a 2.5% gain and its highest intraday level since mid-January.
Traders returned to work in a buying mood after the bank holiday weekend. Mining stocks led the risers, with Kazakhmys and Eurasian up 16%, while Royal Bank of Scotland and Lloyds Banking Group also posted double-digit gains.
Analysts said today's rally was a case of the FTSE 100 playing catch-up with a strong rally on Wall Street last night, where the Dow Jones gained 214 points or 2.6% to 8426.
This latest optimism follows the Chrysler bankruptcy last Thursday, and a forecast that the eurozone recession will be deeper than expected. It also comes despite predictions that the results of America's financial stress-tests, due this week, will show that as many as 10 US banks need more capital.
Manus Cranny of MF Global Spreads said that markets appeared to be reassured that more banks than expected will need funds, which he dubbed a "bizarre way to rebuild confidence".
In April the FTSE 100 posted its biggest monthly gain in six years, prompting speculation that this could be the beginning of a new bull market. Optimists argue that the banking sector is now on a stronger footing, meaning a repeat of the collapse of Lehman Brothers is very unlikely. Others, though, point out that unemployment is certain to rise over the next year as more firms are claimed by the recession and GDP shrinks across the world.
Mark Brumby, analyst at Blue Oar Securities, said there was a healthier feel in the sector at present. However, he cautioned that there is a danger that the UK economy could start to recover next year, only to then shrink again.
"Overall, a number of indicators are pointing towards there being green shoots ... [but] these could wither rapidly and we believe that there is the possibility of a double dip when taxes, interest rates, pension contributions and the dole queue continue to lengthen next year," Brumby said.
Sterling traded as high as $1.5059 against the dollar, having broken back through the $1.50 level last night.
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