FTSE due for a strong rally in 2011, analysts say

The average forecast of 12 market analysts was for leading shares to finish 2011 at 6443 points — less than 500 points below its highest level in its history, reached on New Year's Eve 1999.

UBS's Nick Nelson was the most bullish, predicting a 6700 close and Henk Potts of Barclays Wealth was the least optimistic, at just 6100. Every analyst predicted the benchmark will continue its rally, however.

"Over the course of next year, there will be dividend growth, interest rates will be pinned to the floor and equities as an asset class will continue to look attractive," said Paul Kavanagh, a partner at Killik & Co, who predicts a 6600 close.

"You can feel things that are going wrong but economies and companies don't behave in the same way — a lot of companies are cash rich, they don't have much bank debt and are looking to expand."

Analysts say that the Footsie's foreign focus will protect it from the coalition Government's spending cuts.

"I don't even think of the UK when I make my FTSE 100 forecasts. We estimate between 70% and 75% of revenues come from abroad," said Mike Lenhoff, Brewin Dolphin's chief strategist, who has a prediction of 6450.

"Two major economies will be spear-heading global growth: China and the US. That is good for corporate earnings. Expectations and forecasts for both corporate earnings and economic growth may be revised up."

However, he warned that this could have a knock-on effect on interest rates: "The days of record-low interest rates might be numbered. If the outlook for growth is more promising, central banks will have to re-think their policies — that will temper the extent to which equity markets will rise."

Kavanagh added that he believes that investors should not be too concerned about the Chinese economy: "Its property market might overheat and the banking industry might overheat, but it is not a big bubble — more like a bar of Aero."

The benchmark has risen 7.5% from 5413 points at the start of this year, to its present position of 5817.18.

Last year, market strategists were much more divided about the prospects for the index, with Morgan Stanley predicting a fall of 7% and UBS predicting a 16% jump.

Killik's Kavanagh probably has the most cause to be smug: he predicted a close of 5850 for this year.