FTSE boosted by US Fed's QE move

Cheer surrounding the US Federal Reserve's move to pump billions of dollars into the American economy drove London's FTSE 100 Index to its highest level for six months today.

The Footsie soared 1.6% or 95.6 points to 5915.6 as world markets rallied after Fed chairman Ben Bernanke last night unveiled the country's third round of quantitative easing (QE) - worth 40 billion US dollars (£25 billion) a month.

The Dow Jones Industrial Average on Wall Street rose another 70 points in early trade after soaring 1.5% overnight, while France's Cac-40 moved 2.3% ahead, the Dax in Germany added 1.4% and Asian markets closed higher.

The Dow is now trading at its highest level for nearly five years, while traders said the Footsie also has the psychologically important 6000 mark in sight. Michael Hewson, senior market analyst at CMC Markets UK, said: "Markets have soared today as investors gorged themselves on the prospect of unlimited free cash from the Federal Reserve over the coming months as well as central banks around the world."

But he added that the extent of the Fed's QE programme suggested there could be "something rotten simmering underneath the US economy, which the Fed feels it needs to mitigate against now".

The move sparked a return to risk among traders, with mining stocks filling the rising board, including Kazakhmys up 14% and Vedanta Resources ahead 13%.

The Fed's decision is potentially controversial as the US presidential campaign enters its final stretch, with Republicans likely to accuse the central bank of supporting President Barack Obama's re-election by boosting the economy as voters go to the polls. But Mr Hewson said "the committee decided to throw caution to the wind and dispense with worrying about appearing political".

The Fed said the US economy was too weak to reduce high unemployment without support. It will buy mortgage-backed securities under the QE3 plan, which will continue as long as necessary.

The central bank said: "If the outlook for the labour market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability."

The Fed added that "strains in global financial markets continue to pose significant downside risks to the economic outlook" in a sign of mounting concerns over the eurozone crisis and a weakening Chinese economy.