Markets Eye Federal Reserve For QE Clue

Expectations the US Federal Reserve will maintain its economic stimulus plan at its current level until March are helping drive stock markets higher - to new record highs in some cases.

Investors are watching the outcome of a two-day policy meeting for clues on when the $85bn monthly programme of quantitative easing (QE) will start to be slowed.

The Fed shocked the market last month when it decided it was not the right time to start turning off the taps despite its chairman Ben Bernanke previously signalling that a slowdown in bond purchases would take place by September amid stronger indicators for US economic recovery.

The 16-day partial government shutdown earlier this month - when political wrangling in Washington left Congress and the White House unable to reach a budget deal - has since added to fears a recovery in output is not yet set in stone.

Janet Yellen is on course to succeed Ben Bernanke as Fed chair

Because US economic recovery has failed to gather momentum, the market is betting on no change to QE until March 2014 - by which time Bernanke will have been replaced, with Janet Yellen nominated by President Obama to succeed him from February.

The prediction for tapering has helped drive the Dow Jones and the S&P 500 indexes to record levels because the bonanza of cheap money has underpinned investment.

The FTSE 100 hit a five-month high in trading on Wednesday but remained more than 150 points off its own record of 6,950 achieved in 1999.

Value correct at 14.15 GMT on Wednesday

In addition to values being boosted by the prospect of QE continuing, the premier index in London was boosted by the retail sector as Next highlighted a good day for earnings with a strong quarterly report.

Britain's second-biggest clothing retailer saw its value climb after it raised its 2013 profit guidance while third quarter sales came in a touch above expectations.

Banks also benefited from better earnings with Barclays advancing after its underlying profits - those covering its day-to-day business - beat forecasts though £741m of costs to date this year on reforming its culture hit net profits - declining 26% over the quarter.

Craig Erlam, an analyst at the brokerage Alpari, was bullish on prospects for the FTSE 100 but said it could struggle to pass 6,838, a previous level of resistance, and then 6,875, the 2013 high.

He said: "Above here we have the all-time high of 6,950.60, a level I see the FTSE surpassing before the end of the year unless the Fed tapers (slows bond purchases) before then."

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