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THE FTSE IS BACK

THE FTSE 100 has recorded its highest ever quarterly rise over the past three months, adding over a fifth of its value on hopes that the economic recovery is firmly underway.<br /><br />The index of Britain&rsquo;s largest firms opened the third quarter at 4,249 points and climbed 21 per cent to close at 5,134 by the close of business yesterday.<br /><br />But as traders closed their healthy books last night, market experts warned the over-inflated bubble will sooner or later have to burst, meaning more pain for investors who were burned by the stock market crash earlier this year.<br /><br />Soci&eacute;t&eacute; G&eacute;n&eacute;rale&rsquo;s Albert Edwards, traditionally one of the City&rsquo;s most bearish strategists, said: &ldquo;The question is whether this recovery is sustainable. It is mainly due to a massive global monetary stimulus, but that will wear off next year.<br /><br />&ldquo;Historically, we see a series of very rapid booms and busts after an economic bubble bursts, and I think there will be decisive new lows on the stock market to come.&rdquo;<br /><br />Stock market historian David Schwartz added: &ldquo;This could either be the start to a rip-roaring bull market or the end to a seven-month wonder. I think there is more upside to come in the long run, but I personally believe the market has gone too far, too soon. We may well see a short term entrenchment in equities soon, perhaps a 10 per cent sell-off.&rdquo;<br /><br />Schwartz also pointed out three previous strong quarters on the market which had all marked a turning point for equities.<br /><br />The FTSE 100 &ndash; which launched in 1984 &ndash; rose 14.9 per cent in the final quarter of 1999, prior to a coordinated interest rate cut on both sides of the Atlantic; 11.5 per cent in the final quarter of 1992, when the market rocketed after the UK was forced to withdraw sterling from the European exchange rate mechanism (ERM); and 14.3 per cent at the peak of the seven-year bull market in the second quarter of 1987. The index has risen 46 per cent since 3 March this year, when it slumped to a low of 3,512 after the economic crisis sent investor confidence into freefall. And it is now only 1.3 per cent behind the 5,204 close on 15 September last year, the day Lehman Brothers filed for Chapter 11 bankruptcy.