By Atul Prakash
LONDON (Reuters) - Britain's top equity index turned the clock back to the last millennium on Tuesday, breaching highs not seen since the dot com boom days of 1999, when newspapers warned of "Y2K bugs" and the euro had yet to acquire cash form.
The three-decade-old blue-chip FTSE 100 index closed at 6,949.63 points, shortly after setting a fresh intraday record of 6,958.89 points that beat the previous high of 6,950.60 recorded on Dec. 30, 1999.
Rather than stoke fears of irrational exuberance, analysts said the index could keep climbing as investment flows pour into equities to escape the grim post-crisis world of rock-bottom interest rates.
"I was in the market in 1999, and this doesn't feel anything like as exuberant," said Peter Sullivan, head of European equity strategy at HSBC.
"It's like being on a different planet ... Back then it felt like blue sky, like we could grow for an awful long time."
Britain's economy today looks less bubbly than in 1999, when central bank interest rates were 5.5 percent and annual growth at around 3 percent.
Banking blow-ups and a flurry of deal-making have also removed FTSE stalwarts such as Alliance and Leicester, Cadbury and Abbey National from the index.
But investment is pouring into European equities to escape the post-crisis hangover of rock-bottom rates and to capture relatively lucrative dividends.
"These lofty levels will entice a lot of investors to book profits, but the overall sentiment seems very bullish," said Jawaid Afsar, a trader at Securequity.
The FTSE 100 index has gained about 13 percent since a December low and is up nearly 6 percent this year. The market capitalisation of the FTSE 100 constituents is now about 1.9 trillion pounds ($3 trillion), compared with 164 billion pounds in December 1985, the first available data.
"We expect the FTSE to post positive returns over the next 12 months," HSBC's Sullivan said.
"Earnings are 99 percent higher than they were in 1999. It is almost a 'buy one, get one free' market."
Financials have a 22 percent weight in the FTSE 100 index, while consumer goods, oil and gas and basic materials account for about 16 percent, 15 percent and 8 percent respectively.
Basic resources stocks were the top gainers in the index, with the UK mining index <.FTNMX1770> rising 3.2 percent on a rally in metals prices.
Global mining company BHP Billiton (BLT.L), up 6.2 percent, was the top gainer, after announcing further belt-tightening to withstand tough conditions. It reported a 31 percent drop in half-year profit, which beat market forecasts.
The broader market was also helped by Federal Reserve Chair Janet Yellen, who said it would be several months before the Fed expected to raise interest rates. She told a congressional committee the Fed was preparing to consider hikes "on a meeting-by-meeting basis".Analysts said that despite uncertainties in the market, the long-term case for equity investing remained robust.
"Even those investors and pension funds who put money into the UK stock market at the worst possible time in 1999 have seen a 75 percent return on their investment, if you take dividends into account," Hargreaves Lansdown analysts Laith Khalaf said.
"The current level of the FTSE is underpinned by company profits to a much greater extent than it was in 1999. The economic backdrop is also encouraging for UK companies, with low interest rates, low inflation, and growth forecasts rising."
(Additional reporting by Sudip Kar-Gupta; Editing by Lionel Laurent/Ruth Pitchford)