The FTSE 100 rose by more than 4 per cent yesterday as stocks across the board were buoyed by expectations of an interest rate cut tomorrow.

The gains came as Morgan Stanley strategists advised clients to start buying equities again, saying that the market had come full circle since they advised selling in early June. The US investment bank said that its market timing indicators were now giving it a full-house “buy” signal.

It said that the change arose from a capitulation among retail investors, purchasing managers and sell-side analysts, and that “when these three groups know about bad news, equity prices are probably already reflecting it”.

Overall, Morgan Stanley said that despite a bad outlook, with companies facing the worst earnings recession in 40 years, prudent investors should not be short of equities and long-term investors should average in.

The FTSE 100 index rose for the sixt consecutive session, climbing 196.22 points to 4,639.5, in line with markets on the Continent and in the US before America’s election.

The prospect of lower rates encouraged investors to buy bank shares, with Barclays up 14.4p at 185.9p and HBOS up 10.6p at 116p. Even Royal Bank of Scotland, which spent most of the day in negative territory after giving a pessimistic full-year outlook, closed flat at 65.2p.

Resource stocks also made gains, with Kazakhmys leading the index, up 59½p to 397¼p as metal prices rose.

Retailers were buoyed after interim results from Marks & Spencer, up 17p to 238½p, were no worse than feared.

Next, which gives a trading update today, rose 30p to £11.25, and Kingfisher gained 7.4p to 129.4p. HMV added 10p at 111¼p and Game rose 19¾p to 149¾p on vague talk of a merger.

However, Associated British Foods, the food products and Primark group, did not join the rally. Its shares fell by 9½p to 698p after it reported a 3 per cent drop in annual net profits because of higher costs. BSkyB rose 34¾p to 424¼p as traders speculated that the satellite broadcaster could lift operating profits by as much as £60 million a year after the rival Virgin Media agreed to carry its basic news and entertainment channels on its cable service.

Housebuilders advanced on hope of a rate cut, with Taylor Wimpey rising 2¼p to 16p and Barratt Developments up 1¾p at 87¾p.

St James’s Place leapt 23p to 200p after the investment manager said that third-quarter sales held up well despite the sharp downturn in equity markets. Mike Wilson, the chairman, reassured investors about the fate of the 60 per cent stake in St James’s held by HBOS, the mortgage lender about to be taken over by Lloyds TSB. He said that Eric Daniels, Lloyds TSB’s chief executive, had told him three or four weeks ago that his bank wanted to expand in wealth management and was an admirer of the St James’s business model. “If I were a betting man I would bet that the stake would move over to Lloyds TSB once the acquisition completes,” Mr Wilson said.

- New York: Shares on Wall Street rallied as Americans cast their ballots amid hopes that a new man in the White House would bring relief from the global financial crisis. The Dow Jones industrial average was up 305.45 points to close at 9,625.28.

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