Market report: Tuesday close

CITY investors were quick off the mark on the first day of trading in 2005 with share prices racing up to a new two-and-a-half-year high. They squeezed prices higher in thin trading as the FTSE 100 index touched 4850.2, its highest since June 2002. At the close, the index was up 26.0 at 4840.3.

Spread-bet firm IG Index forecasts the Footsie will trade at 4905 in a year and between 4370 and 5210 this year overall. London's bullish stance was backed up by an opening rally on Wall Street this afternoon in spite of a sell-off in Hong Kong today. Dealers said equities were being led by the futures market.

Thin conditions were artificially boosted by a line of 101.66m shares at 246.42p in Rolls-Royce, 2¼p cheaper at 244¾p. The sale formed part of a dividend wash. A line of 40m BP went through at 502½p, the shares slipping 3p to 505p.

Reed Elsevier is one company City fund managers may be paying particular attention to in 2005 - that is if the conclusion of US securities house Lehman Brothers is anything to go by in its latest wide-ranging review of the European media sector.

Lehman is forecasting strong earnings growth for the Anglo-Dutch group following a 'slew of recent acquisitions'. It has upgraded its recommendation-from equalweight to overweight and lifted its 12-month target from 490p to 579p. That made it one of the better performers among the top 100 companies today with a rise of 13¾p to 494¼p.

Advertising giant WPP, down 5½p at 567½p, has been downgraded from equal weight to underweight by Lehman following signs of a 'slight slowdown' in the marketplace, while music publisher EMI has also been cut to underweight on the back of poor sales in the US.

Steelmaker Corus was one of the better share-price performers last year, rising from a low of 30p. Today it traded ½p dearer at 51p on turnover of more than 23m shares. Its performance this year may be a little less impressive, according to broker ABN Amro, which says the rating looks a bit expensive.

It has begun coverage with a reduce rating. But the price was also being buoyed by reports that Corus had been identified as a potential takeover target by German group ThyssenKrupp.

HIT Entertainment jumped3½p to 277½p after it emerged Dutch TV producer Jon Endemol had picked up a further 300,000 shares through his private vehicle Talpa Beheer. It takes his holding to 14.2m shares, or 8.98%. He also owns stakes in Iron Maiden music outfit Sanctuary, down ¼p at 43¼p, and Channel 4 cricket broadcaster Television Corp, unchanged on 111p.

Hotels chain Whitbread rose 15½p to 862p after quashing rumours that it planned to sell off the David Lloyd leisure centres chain.

US bank JP Morgan says the rally in easyJet, 3p better at 190¾p, has only just begun and repeated its overweight rating. It claims that, by September, more than half the fleet will be the lowest-cost aircraft in the world and that by the end of the year it will be valued as a growth company.

Shire Pharmaceuticals led blue-chips higher with a rise of 30p to 577p as investors gave their approval to a link-up with New River Pharmaceuticals to develop and commercialise NRP 104 for the treatment of hyperactivity.

But Japanese investment house Nomura was not celebrating, saying this was not the deal the market had been expecting.