THE London market continued to defy gravity yesterday as the FTSE 100 Index closed at its fourth-highest level.

The blue-chip index added another 48.2 points to close at 6803.9, gaining 0.7 per cent to reach a level not seen since December 1999, when the dotcom boom drove the FTSE to a record close of 6930.2.

The FTSE 100 surged past landmark levels set in 2007 and 2000, as comments from the US Federal Reserve suggested the world’s biggest economy may yet see more quantitative easing (QE).

The London market was also given a boost by strong US retail sales figures pointing to more signs of optimism.

On Wall Street, the Dow Jones Industrial Average gained, as did the Dax in Frankfurt and the Cac 40 in Paris.

But the pound fell to a seven-week low against the dollar and struggled against the euro after weaker-thanexpected UK inflation raised the prospect of more QE by the Bank of England.

Lower prices at the petrol pumps pushed inflation down to 2.4 per cent last month from 2.8 per cent in March, which economists said gives the Bank more scope to expand QE beyond its £375bn level.

Retailer Marks & Spencer was among the risers, gaining about six per cent, even though annual profits fell to their lowest level in four years due to a slump in clothing sales.

Underlying pre-tax profits for 2012-13 were £665.2m, a fall of six per cent on a year earlier but in line with market expectations.

Shares were 27.4p higher at 467.9p.

Outsourcing firm Capita made strong gains in the blue-chip index after striking a ten-year deal with mobile phone group O2, worth about £1.2bn.

The deal builds on an existing long-term tie-up with O2 and will see Capita run and manage its call centres.

Capita said it has won new and extended business worth more than £2bn this year, and the upgrade sent Capita’s shares surging six per cent or 56p to 1005p.

Home emergency business Homeserve was the biggest winner on the FTSE 250, despite setting aside £6m to cover a potential mis-selling fine from regulators.

Shares gained ten per cent or 23.2p to 250.2p on investor relief that the boiler repair firm does not expect a bigger penalty from the Financial Conduct Authority for a mis-selling scandal.