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. Last Updated: 07/27/2016

London Market Hits New High




LONDON -- British shares raced to new record highs Wednesday, prompting gains on other European bourses, but the pound headed in the other direction.


London's FTSE 100 index rose 154.4 points, or 2.5 percent, to a record close of 6,307.6, after trading as high as 6,316.6.


A wave of buying was unleashed following some healthy profit reports from Britain's biggest companies recently and a spate of special cash handouts that had swelled investors' wallets.


But sterling sagged against the U.S. dollar as the view grew that the British government wants to adopt the euro. Dollar bulls also pushed the greenback higher against the yen and euro.


Wall Street was more constrained as Alan Greenspan delivered a second day of testimony to Congress, though the Dow Jones industrials were still some 25 points higher when London closed.


The text of the Federal Reserve chairman's testimony to the House of Representatives Banking Committee repeated Tuesday's statement that the U.S. economy was performing very well but faced risks of faster-than-expected growth and of potential harm from an economic crisis abroad.


The world's most-heeded economic policy-maker also said the Fed was prepared to move interest rates quickly in either direction if necessary.


Traders in London, where domestic factors dominated, said Greenspan's comments were nothing out of the ordinary and noted Wall Street's calmness.


"He didn't say anything to frighten anybody," said Jeremy Batstone, head of research at the brokerage NatWest.


Sterling's weakness against the dollar encouraged buying in heavyweight stocks such as Glaxo, up 3.8 percent, with heavy U.S. exposure.


Analysts said the British market had been reassured by the recent spate of results from top firms like British Telecom, Glaxo and banking groups including NatWest and Barclays.


Another positive for shares were Tuesday's comments from Prime Minister Tony Blair seen as taking a more positive line on Britain's joining the European single currency.


As well as opening up the prospect of further declines in British interest rates toward levels in continental Europe, Blair's remarks helped undermine the pound against the strengthening dollar - helping spark demand for leading international shares whose sterling profits would be flattered by dollar strength. Sterling touched a low of $1.5956.


Dollar bulls also sent the U.S. currency higher against both the euro and the yen after a European session characterized by profit-taking and position-squaring.


Also, German insurer Allianz said the Bonn government's tax reform could cost it 2.5 billion Deutsche marks ($1.4 billion) between 1999 and 2002 and that it could transfer whole business units out of Germany if the reform goes ahead.


The euro hit a new low of $1.0927, dragged down by the pound's weakness. On Tuesday the euro had set a low of $1.0936. Some traders see the euro dropping to $1.00.


Germany's Xetra DAX rose almost 1 percent in a recovery from falls earlier this month.


Paris' blue-chip CAC-40 closed up 0.14 percent, or 5.75 points, at 4,213.70.