Even the most pessimistic have had to change their tune recently, as the UK Stock Market pushes on. The FTSE 100 Index has now broken through the stubborn 4200 barrier, and momentum is building for a sustained rally.

While the main market has risen by nearly 30 per cent since the March low, the FTSE 250 Index, containing medium-sized companies, has performed even better. If we assume that the recovery of the mid-cap stocks is sustainable, then the larger companies within the FTSE 100 Index are set for a period of catch-up.

The upswing in the US economy and the associated rebound in the dollar are gathering momentum faster than a US sprinter on medication. The dollar is trading below the 110 level, against the euro, and parity may well be seen by the year-end.

While the Americas account for a little over a quarter of the total sales reported by UK publicly quoted companies, the exposure to the dollar is greater than this. Many currencies throughout the world are pegged to the US dollar. Indeed, if one tallies up the sales to the regions that might be designated broadly as dollar-related, then the exposure rises to about 45 per cent of total sales. Much of this, although certainly not all, is concentrated in the large cap stocks of the FTSE 100 Index.

The big four sectors (oil and gas, pharmaceuticals, telecoms and banks) make up 60 per cent of the FTSE 100 Index by market capitalisation, and nearly half of their combined earnings is dollar-related.

Mining, beverages, food producers and media make up another 13 per cent of the FTSE 100 Index and, of this, half of their combined earnings is also dollar-related.

Add to the US-led cyclical upturn in the global economy, a period of weakness for sterling against the dollar, and analysts will soon be revising up their estimates for dollar earnings.

Since the FTSE 100 Index is the natural home of the more liquid dollar earners, the earnings upgrades could do much to set this index on its way to much higher levels in the coming months.

TODAY sees half year results from Bloomsbury, the publisher of the Harry Potter books.

The latest book, Harry Potter and The Order of the Phoenix, was a bestseller within hours of it being published this summer. That cannot do any harm for the finances of Bloomsbury, but it has to be said that profits pale into insignificance compared to the earnings commanded by Harry's author, JK Rowling.

RETURNING to the larger companies in the Stock Market, there have been some major rights issues announced recently. Electricity and water company United Utilities went cap in hand to shareholders recently for further funds, and holders will need to make up their minds very soon as to whether or not to stump up for further shares.

Royal and Sun Alliance is another company wishing to raise funds via the rights issue route. shareholders are being asked to buy one more share for every existing share held at the deeply discounted price of 70p. At this stage, the number-crunchers are still working through their forecast figures. Ironically, the funds raised are being used to aid an exit strategy from some of its US businesses.

For investment advice contact Anthony Platts on 01642 608855.

Published: 09/09/2003