Bush victory boost for shares

SHARES bounced in London and New York today as investors cheered the news that market-favourite President George W Bush will be spending another four years in the White House.

The FTSE 100 index closed 25.30 points higher at 4718.50 - its highest level since July 2002 - shortly after TV networks reported that Bush had won the key swing state of Ohio and challenger John Kerry had rung the President to concede.

On Wall Street, the Dow Jones industrial average was up 137.38, or 1.37%, at 10,173.11.

Last night, as polls suggested the election would be neck-and-neck and might end up being decided in the courts, the Dow Jones Industrial Average closed 18.66 points lower at 10,035.73.

Alex Scott, senior research analyst at Seven Investment Management, said: 'The big fear was that we would be in limbo. Bush is also seen as slightly more favourable than John Kerry in terms of fostering US growth.'

However, Christopher Sparke, senior dealer at financial betting exchange binexx.com, warned that the honeymoon for markets could soon be over. 'Historical statistics show that the month following a President being re-elected is poor, being the second worst-performing month of the year,' he said.

Meanwhile, worries about the sustainability of America's economic recovery remain. Not only is a second Bush term expected to help equity prices at the expense of bonds - in the short-term at least - it should also boost America's major oil companies.

In his first term, former oilman Bush was frustrated in his push for broad, sweeping, national energy legislation, but analysts expect that he and Vice President Dick Cheney will have another energy Bill high on their list of priorities in a new term.

'The Bush White House believes that high commodity prices should direct investment flow to supply and distribution infrastructure,' said James Lucier, an energy policy analyst at Prudential Equity Group.

Throughout the campaign, Democratic challenger Kerry suggested he would mobilise more strategic US oil reserves to help lower petrol prices. Today, US crude surged 86 cents to $50.48 a barrel.

Voters in New York - just a subway ride from Wall Street - paraded past an $8m (£4.35m) reminder of why they were at the polls in Manhattan. Film producer Norman Lear paid that amount for one of the 25 existing copies of the original Declaration of Independence printed in 1776. Lear has been taking the document around the country to encourage people to vote.

As financial markets celebrated, analysts said the US and British economies face a bumpy ride in the coming months as they grapple with America's ballooning budget deficit and spiralling oil prices.

Conventional wisdom is that a Bush victory means little action will be taken to reduce the budget deficit. However, Doug McWilliams of the Centre for Economics and Business Research, argued that Bush, who has been significantly endorsed by the public and has increased support in the Senate, could be more decisive in economic matters than in his first term.

'The President has allowed relatively heavy levels of government expenditure to take place in the past four years, to some extent under political pressure,' McWilliams said. 'As these pressures relax, we would expect to see expenditure brought under more control.'

Jonathan Loynes at Capital Economics said the fading stimulus from tax cuts and rock-bottom US interest rates would act as a drag on global growth. 'With the election over and done with, it's time for Washington to sort out its books, which could lead to a rather weaker environment for British exporters,' he said.

Mark Cliffe at ING Financial Markets predicted the continuation of Bush's confrontational foreign policy could drive oil prices higher, also dampening global growth.

Despite the continuity that Bush's victory brings, it could be all change in January 2006 when Federal Reserve chairman Alan Greenspan's term expires.

US election special