BLUE-CHIP shares raced ahead yesterday as investors enjoyed a rare upward swing on the London market.

The day was notable for a string of corporate updates, but the main driver for the improved mood was a sterling performance in the US overnight.

The Dow Jones Industrial Average closed up 6.4 per cent, its biggest percentage gain since 1997, and the tech-laden Nasdaq ended on a high note.

Shares gained as Wall Street cheered government plans to tackle a recent spate of accountancy scandals.

Rumours that the Federal Reserve would take emergency action to shore up confidence also boosted trading.

The FTSE 100 Index remained above the 3900 mark, up 125.0 points at 3902.1 by lunchtime and at the close was up 188.8 at 3965.9.

Among the gainers were insurers, which put back some of their recent losses and telecoms also soared ahead.

Charles May, a director of North East investment manager Wise Speke, a division of Brewin Dolphin Securities Limited, said: "While it is impossible to call the bottom of the market, over the last few days we have detected greater buying interest from a broad spectrum of investors."

There was further evidence yesterday that the housing market is slowing down as lending figures showed a fall in the number of new mortgages approved.

The British Bankers' Association said the value of loans approved by its members fell to £13.6bn during June - the lowest level for four months.

The number of mortgages approved for house purchase was also down, falling 17 per cent by number and three per cent by value compared with June last year.

It said the drop in lending may have been caused by the golden jubilee bank holiday, though it added the fall in approvals suggested the housing market was slowing as affordability became stretched.