Dow clambers back on rate cut talk

American investors piled back into the stock market yesterday amid fevered speculation that the US central bank is planning another surprise cut in interest rates.

The Dow Jones index of US leading shares rose nearly 300 points by noon, breaking through the 10,000 barrier for the first time in three weeks and lifting the London market. The FTSE index closed up 139.7 points at 5803.

Rumours that the US Federal Reserve could be planning to cut interest rates before its next scheduled meeting in mid-May helped erase some of the gloomy sentiment prevailing on Wall Street since early March. Analysts said investors had seized on the absence of any bad news from US companies to snap up stocks at bargain basement prices, but they warned yesterday's rally did not mean that the share price slide was over.

"The bear market is still in force. This rally is a good and an important sign that maybe we're starting to bottom, but there's no evidence we've bottomed yet," said Bob Streed, portfolio manager of Northern Select Equity Fund.

Hi-tech stocks led the rally, boosted by the news that a leading investment bank had upgraded its forecast for Europe's debt burdened telecoms firms. Credit Suisse First Boston raised its weighting in European telecoms to "neutral" from "underweight".

Investors' attention will now turn to the European Central Bank, which is under mounting pressure to join global efforts at warding off recession by lowering borrowing costs at its meeting today.

As the ECB's governing council prepared for its meeting last night, independent forecasters slashed their predictions for growth in the euro zone. The Organisation for Economic Cooperation and Development announced it had cut 0.4 percentage points off its forecast for the 12 members in the single currency area, expecting growth to expand by 2.7% this year, well down on last year's 3.4%.

Earlier, six German think tanks warned that growth in the euro zone's biggest economy is slowing sharply, and called on the ECB to deliver a steep cut in interest rates.

Most economists expect the ECB to announce a quarter percentage point cut in interest rates today, but there are now increased worries that this may not be enough to ward off the impact of the global slowdown.

"I don't think anyone is of the opinion that they are going to procrastinate long. It's getting clearer and clearer that the European economy is slowing," said Gianpaolo Mosconi, an analyst at Sanwa International. The ECB has held interest rates at 4.75% since last October.