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Flatish

07 December 2004 Angelo Coppola

The London market ended largely flat last weak, as weakness among blue chip dollar earners on the back of dollar weakness was offset by a weaker oil price and a favourable water industry regulatory review.

Sterling hit a 12 year high against the dollar of over $1.91, benefiting from comments from Bank of England Governor Mervyn King that he expects economic growth to accelerate and on speculation that US officials favour a weaker dollar.

This was the highest level since sterling was forced out of the EC’s Exchange Rate Mechanism. The UK is the only G7 major industrialised nation to avoid a contraction in its economy in any quarter in the past five years.

Data from the Nationwide Building Society showed house prices unexpectedly rising in November at the fastest pace since July. Prices rose 1.0% against expectations of a 0.2% decline, following a 0.4% fall in October.

This gave a year on year rise of 15%, compared with a 15.3% annual increase the month before. The pickup in house price growth conflicts with reports from estate agents suggesting prices fell last month and suggests that buyers remain confident, despite recent interest rate rises.

Over the week the All-Share advanced 0.2%, led by a 0.9% gain in midcaps, with the FTSE 100 and smallcaps both just 0.1% higher. The favourable water industry review led the utilities sector higher, with life assurers and telecoms also making gains, while the resources area was universally weak.

Accounting software maker Sage Group (+5.2% to 198p) reported a 21.6% rise in fiscal full year profit, helped by acquisitions in the US and Spain.

In March, Sage a US software business from Computer Associates International for $99m, which followed the purchases of Spain's Group SP and South Africa's Softline to boost revenue as customers cut spending on technology.

Sage has spent £1.3bn on 17 acquisitions since 1991.

Based on recent stronger surveys, October industrial production data, due out this week, is expected to rebound from a four month decline, while October trade figures are expected to show a slight worsening of the goods deficit.

The monthly meeting of the Monetary Policy Committee is expected to see rates remain at 4.75%, as the Bank of England traditionally leaves rates unchanged in December as it awaits details of Christmas trading in the new year.

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