US economic concerns fail to halt Footsie's advance

Strong gains from banks and insurers helped the Footsie close 78.13 points higher at 5410.52 in a buoyant start to the week, aided by thin holiday season trading volumes.

The rise helped London's blue chip share index recover ground lost on Friday when US job figures offered further signs the US economic recovery was grinding to a halt.

In America, the Dow Jones Industrial Average also rose in early trade amid expectations for the Federal Reserve to announce further stimulus measures, possibly as soon as today.

While a no-change decision is still the most likely outcome, the Fed is likely to indicate in its statement that the US economy has lost momentum.

The Fed, while widely expected to renew its vow to keep interest rates near zero for an extended period, may indicate it is prepared to print more money to support the economy.

The central bank's options include reinvesting the proceeds of mortgage bonds as they mature and putting the money back into new securities.

Yesterday, Goldman Sachs cut its year-end target for the S&P 500 index to 1,200 from 1,250.

The Bank of England, which publishes its quarterly inflation report tomorrow, will also stoke fears about the UK economic recovery when it will predict a mix of slower growth and higher inflation over the next two years.

Despite fears over the bank's latest predictions, the pound held steady at 1.59 dollars and 1.20 euros.

Insurers were doing well after City firms including Panmure Gordon and Bank of America Merrill Lynch upgraded their guidance on Aviva in the wake of the company's interim results last week.

Aviva shares extended their recent rally with a gain of 81/4p to 390p, while Prudential rose 151/2p to 587p ahead of its own figures on Thursday.

It is expected to announce a sharp hike in its dividend, and to reject calls for a strategic revamp following its failure to land AIA.

Legal & General provided the sector's biggest rise with a gain of 31/8p to 901/4p and Barclays recovered from last week's fears over revenues at its investment banking arm to improve 103/8p to stand at 335p.

Rugeley power station owner International Power soared 4 per cent, or 135/8p to 380p, after reports said France's GDF planned to pay a special dividend of up to 1.3bn as part of its bid for majority control.

But beleaguered social housing firm Connaught continued to suffer as speculation mounted that shareholders were likely to be wiped out in a debt-for-equity swap that will hand control to lenders.

Shares in the FTSE 250 stock were down another 29 per cent, or 41/2p to 11p, after falling 46 per cent on Friday following its warning that it faced a material full-year loss.

Elsewhere, construction firm Morgan Sindall added 11p to 570p as first-half results signalled uncertainty over prospects until the Government's October spending review.

The biggest Footsie risers of the session were TUI Travel up 91/4p to 2255/8p, Schroders ahead 58p to 1429p, International Power and Legal & General.

The biggest Footsie fallers of the day were African Barrick Gold down 10p to 558p, Royal Bank of Scotland sliding 3/4p to 503/8p, Reed Elsevier off 41/2p to 5491/2p and Bunzl down 4p to stand at 6841/2p.