Market report: Monday close

BLUE-CHIP shares got off to a flyer in the City today as increasing confidence in the economic recovery helped the FTSE 100 index break free from its recent slumber and storm towards a one-month high.

Despite speculation of another interest rate rise this week and growing signs of a rate increase in the US at the end of the month, investors moved in from the sidelines to push banks, insurers and retailers higher.

The Footsie had traded within a 70-point band for 20 consecutive sessions until today, but once past 4470 it gathered momentum to close 34.2 points higher at 4488.60.

Punters took their lead from the biggest one-day gains in Tokyo since December. A strong start on Wall Street, where the Dow jumped 80.4 to 10,323.20, gave a further boost. The tech-laden Nasdaq was up 19.84 at 1998.46.

Meanwhile, the New York Stock Exchange may close for a full day on Friday when former US President Ronald Reagan's funeral is scheduled to take place. The Exchange today held a two-minute silence to mark his death but said it was also contemplating staying closed on Friday in keeping with tradition.

Many had forecast another quiet day for the London market, given there are to be two keynote addresses by US Federal Reserve chairman Alan Greenspan this week.

But economists have taken heart from last Friday's encouraging US job numbers and feel the prospect of a rate increase from the Bank of England on Thursday is already priced in.

In London, the whirlwind of speculation around Marks & Spencer and the possibility of an all-cash bid from billionaire Philip Green helped push the retailer ahead 4p to 361.5p.

Argos owner GUS rose 9 1/2p to 846 1/2p after investment bank Deutsche Bank upgraded it to buy from hold following its recent commitment to a strategic review. Deutsche believes investors should swoop, given the prospect of a demerger of the business which could unlock significant shareholder value. It put a 1000p target on the stock.

Defence specialist GKN was also on the up and making what is likely to be a doomed bid to remain in the Footsie ahead of Wednesday's quarterly shake-up of the index. The shares rose 1 3/4p to 234p but they have fallen 16% since the turn of the year, making them clear favourite to lose out in the reshuffle, which should see support services firm Capita take GKN's place.

Capita, the group running Ken Livingstone's congestion charging scheme, is reaping the rewards of a number of major contract wins this year and its market value is now £2bn. Shares today rose 1p to 313 1/2p.

This week's reshuffle could come too quickly for the success story of the year, Cairn Energy, which climbed 15p to 1115p after yet more good news on the quality of its oil discoveries in India.

The shares were as low as 277 1/2p last year before the company struck oil in Rajasthan, north-west India, but it is still behind Capita and jewellery group Signet in the push for the Footsie.

Support services firm Mitie marched ahead nearly 4%, or 5p to 126 1/4p, after beating expectations with annual results and upping the dividend by 32%. Scottish brewer Belhaven surged 13p to 446 1/2p after promising yet more growth in the year ahead following a 31.4% surge in pre-tax profits to £14.2m for the year to March.

A brewing bid battle pushed shares in IT consultancy minnow Diagonal up 2 1/2p, or 5%, to 46p, despite its rejection of an unsolicited proposal from rival Microgen, which today said it had bought a 7.46% stake. Diagonal said its offer of a tie-up via a share exchange was 'without significant merit'.