LONDON'S FTSE 100 Index edged closer to the 4200 barrier after benefiting from improved sentiment in New York.

The upbeat tone was set early on by the Dow Jones Industrial Average's strongest close in 11 months following positive US economic news.

The Footsie surged almost 50 points in the opening minutes of trading and held on to those gains to close 37.5 points stronger at 4190.4.

However, the 4200 barrier, which would provide another landmark in the recovery of the London market, was a step too far. At one stage the Footsie reached 4199.1 before retreating.

The chances of a late push beyond 4200 was also not helped by a more subdued start to trading on Wall Street following the previous session's two per cent rise for the Dow Jones Industrial Average and the tech-laden Nasdaq.

Further healthy economic news should have provided another lift for US stocks but investors preferred to take profits after Monday's strong run.

Financial stocks were among those to benefit from the improved sentiment in London, with Lloyds TSB up 20p at 476p after a positive broker update. HBOS also rose 13p to 805p and Barclays added 6p to 467p.

Only Abbey National bucked the trend in the sector, easing 8p to 512p ahead of an eagerly awaited trading statement.

In the retail sector, B&Q-to-Comet group Kingfisher was under pressure - down 10p at 272p - after a broker downgrade in the wake of details of the long-awaited demerger of its electrical business Kesa, which includes Comet.

Rival electrical retailer Dixons showed a 4p rise to 112p. Among other retailers, supermarket firm Tesco added more than three per cent or 6p to reach 217p.

Outside the top flight, Rolls-Royce continued to rally as it moves towards its return to the FTSE 100 Index next week.

Two major engine orders in as many days, including a deal with EgyptAir, boosted the aerospace group's shares 5p to 132p.

Toy retailer Hamleys also lifted 8p to 202p after Icelandic retailer Baugur announced it was behind a management buyout of the prestigious Regent Street toy store group.

Also in the sector, department store group House of Fraser added 2p to 89p - a two per cent rise - after reporting a "creditable" first 20 weeks of its financial year.