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The FTSE 100 share index came close to an all-time high after rising above 7,000 points as the pound plunged to a new 31-year low against the dollar.

London's leading share index closed up 1.3% at 7,074.34 - just short of its record high of 7,103.98.

However, the pound fell to $1.2737 at one point - its lowest level against the US dollar since 1985.

Sterling has fallen for the past two days as traders study the Conservative Party conference for Brexit details.

Simon Jack: Why rising shares aren't a sign of joy

Business Live: FTSE up, pound down

Against the euro, the pound was down 0.7% at €1.13840.

The FTSE 250 share index, which features more UK-focused companies, closed at a record high, surging 0.9% to 18,342.07.

Stock markets in Frankfurt and Paris also closed higher on Tuesday.

Overseas profits

The FTSE 100 has benefitted from the fall in the pound since the Leave vote because the many international companies whose shares are traded in the UK tend to benefit from it.

Profits earned abroad by multinationals such as drugs giant GlaxoSmithKline and major mining companies are worth more when converted into sterling.

That makes a company's shares appear better value when compared with the higher profits it will make, prompting a revaluation of the stock.

The FTSE 250 index, however, has lagged behind the FTSE 100 since the Brexit vote because gains from the weaker pound for the outward-looking businesses have been offset by fears about the fortunes of UK-focused companies.

The FTSE 250 contains a higher percentage of UK-facing businesses than the 100. Since June though, a string of better-than-expected economic news has also helped to lift their share prices.

On Tuesday, a closely watched survey suggested that the UK's construction sector had unexpectedly returned to growth in September.

The latest Purchasing Managers' Index for the construction sector rose to 52.3 from 49.2 in August. Any figure above 50 indicates expansion.

"Resilient housing market conditions and a renewed upturn in civil engineering activity helped to drive an overall improvement in construction output volumes for the first time since the EU referendum," said Tim Moore, senior economist at IHS Markit, which compiles the survey.

Sterling 'wounds'

On Sunday, Prime Minister Theresa May said she would trigger Article 50 by the end of March 2017.

Analysts say the pound has been hit by the prospect of the UK leaving the EU single market as part of the Brexit process.

Esther Reichelt, currency strategist at Commerzbank, said the government's apparent insistence on limiting freedom of movement was causing particular uncertainty among investors.

"This increases fears of a 'hard' Brexit because so far nobody sees a possibility of achieving this without May having to accept notable restrictions when it comes to accessing the single market," she said.

Connor Campbell, analyst at traders Spreadex, said: "It seems that it is going to be hard to provide a tourniquet for sterling's recent wounds given the solidity of the newly announced Brexit timeline."

Kathleen Brooks, research director at Forex.com and City Index, said the Tory party conference was turning into a sell for the pound given Mrs May's "apparent sanguine attitude to leaving the single market, preferring to focus on immigration and UK sovereignty rather than the economic fallout of Brexit".

She said comments by the Chancellor, Philip Hammond, in which he warned that the UK economy was heading for a "rollercoaster" ride over the coming years, had not helped.</s>The British pound slumped to its lowest level in 31 years on Tuesday on fears that the U.K.'s divorce from the European Union will be bad for the economy.

The currency fell to just above $1.27, lower even than in the immediate aftermath of the EU referendum on June 23, when Brits voted to take their country out of the 28-member group.

Brexit plans have begun to emerge in the last few days: talks with the EU will begin in early 2017, the exit will happen two years later, and the U.K. will give priority to controlling immigration.

European leaders have made clear that if Britain does not allow free movement of EU citizens across its borders, it will lose some of its rights to access the free trade area.

So investors are worrying again about two big issues: British exporters may find it harder to compete in Europe, and the country's banks could lose the ability to do business freely across the region.

Thousands of financial firms in the U.K. currently have "passports" that allow them to trade in Europe without establishing subsidiaries in each country. And those businesses are vital for Britain: the financial and related services sector accounts for 12% of GDP.

Bloomberg reported Tuesday that Prime Minister Theresa May would "refuse to prioritize" the financial services industry in exit negotiations with the EU. Citing three anonymous government sources, Bloomberg said the sector held far less sway with May than with her predecessor David Cameron.

Related: Brexit exodus? Most big companies have thought about relocating

Instead, May now appears to be putting control of Britain's borders first. Brexit campaigners had promised to impose new limits on the number of EU citizens entering the U.K.

"We voted to leave the European Union and become a fully independent, sovereign country," the Conservative leader told party members this weekend. "We are not leaving the European Union today to give up control of immigration again."

Kit Juckes, a strategist at Societe Generale, said that May appears to be treating immigration as "the hardest of lines... [that] won't be sacrificed or watered down in order to keep access to the single market, particularly for financial services."

Some investors fear that the strategy will result in a "hard" exit from the EU and years of pain for Britain.

Related: 100 days after Brexit vote: No meltdown (yet)

The U.K. economy has proved more resilient than expected in the wake of the EU referendum, but the sharp fall in the value of the pound and a big injection of money from the Bank of England have helped limit the fallout.

Treasury chief Philip Hammond acknowledged Monday that the British economy would pay a price for Brexit.

He confirmed that a target to balance the budget by 2020 set by his predecessor would have to be abandoned -- a consequence of Brexit that will add to Britain's £1 trillion-plus debt.

The International Monetary Fund added to the gloom on Tuesday, downgrading its July forecast for the U.K. economy. Even in the best case scenario, where fallout from Brexit is limited, the IMF predicts growth to slow to just 1.1% in 2017.

The pound has lost fallen than 15% over the past year, and is now trading way below its recent high of $1.71 set just two years ago. Analysts at UBS said the pain is far from over.

"In our view it is only a matter of time before less positive data starts to appear," they warned.</s>Sterling plunged to a new 31-year low against the dollar on Tuesday as fears over a so-called "hard Brexit" intensified.

The pound fell 0.5% against the greenback in morning trading to 1.276 US dollars, its lowest level since 1985. Sterling was also down 0.2% against the euro at 1.14.

Investors have been spooked by a series of announcements at the Conservative Party conference, where Theresa May said the two-year process of negotiating Brexit under Article 50 of the EU treaties will start by the end of March, putting the UK on course for a "hard Brexit".

This would see Britain lose access to the European single market as part of plans to clamp down on immigration.

Kathleen Brooks, research director at Forex.com and City Index, said: "The Tory Party conference is turning into a sell for the pound, as foreign exchange traders get spooked by May's apparent sanguine attitude to leaving the single market, preferring to focus on immigration and UK sovereignty rather than the economic fallout of Brexit."

Ms Brooks also said Chancellor Philip Hammond's comments, in which he warned that Britain's economy is heading for a "rollercoaster" ride over the coming years, had compounded the sterling sell-off.

"Phillip Hammond, the UK's new Chancellor, didn't help the pound either when he suggested that George Osborne's fiscal rules will be abandoned and Government spending increased. This is designed to cushion some of the blow from the UK's departure from the European Union.

"However, it is likely to weigh on the UK's already large budget deficit, which is another blow to the pound at the start of the new quarter," she said.</s>The pound slumped to a 31-year low against the dollar Tuesday on concerns over the timing and terms of Britain’s planned exit from the European Union, traders said.

Britain’s currency also struck a fresh three-year low point against the euro, while the drops helped pushed London’s benchmark FTSE 100 stocks index up to a 16-month high beyond 7,000 points at the open.

While the British economy has showed signs of improvement in the months since the shock vote to leave the EU, there are concerns about the wider long-term impact of the bloc losing its second-biggest economy.

British Prime Minister Theresa May announced at the weekend that her government would start the process of leaving the EU within the next six months — possibly leading to Britain severing ties with the single market.

The pound on Tuesday struck $1.2740 — its lowest level since 1985.

Sterling meanwhile traded at 87.66 pence to the euro — the weakest level since 2013.

“It seems that it is going to be hard to provide a tourniquet for sterling’s recent wounds given the solidity of the newly announced Brexit timeline,” said Connor Campbell, analyst at traders Spreadex.

“In terms of silver linings, the pound’s protracted demise has continued to lift the multinationals that make up the FTSE 100, leaving the index back above 7,000 for the first time in 16 months.”

The FTSE rallied to a gain of 1.6 percent in morning deals, compared with Monday’s close.

“The reality is the biggest stocks in the index dominate its performance, and the likes of HSBC, Royal Dutch Shell, and British American Tobacco all have international earnings which are now worth more in pounds and pence thanks to sterling’s decline,” said Laith Khalaf, senior analyst at stockbrokers Hargreaves Lansdown.

In the eurozone, Frankfurt’s DAX 30 stocks index won 0.7 percent compared with Friday’s finish. The DAX was shut Monday owing to a public holiday in Germany.

Elsewhere Tuesday, Asian stock markets rose with Japanese stocks boosted by a weaker yen.

The dollar won support from a rebound for US manufacturing, which helped turn attention back to US monetary policy, days ahead of the release of a closely watched jobs report.

Traders took the data as a sign that the world’s top economy is getting back on track and would be able to withstand an increase in borrowing costs.

The Fed had considered a rate hike last month but held off, saying it wanted to see more evidence of strength.

“Traders are seeing a number of reasons to be a little cautious this week,” said Oanda analyst Craig Erlam.

“One of the obvious reasons for this is that we will get the US jobs report on Friday which often weighs on risk appetite.”

Pound/dollar: DOWN at $1.2749 from $1.2841 Monday

Euro/pound: UP at 87.61 pence from 87.30 pence

Euro/dollar: DOWN at $1.1167 from $1.1211

Dollar/yen: UP at 102.34 yen from 101.63 yen

New York – DOW: DOWN 0.3 percent to 18,253.85 (close)</s>Sterling has fallen to a new 31-year low against the dollar in early trading on Tuesday.

The currency has been under pressure as investors concern about UK's Brexit-vote welled up following Prime Minister Theresa May's announcement that the UK would kick of the process of separating from the EU in March 2017.

Sterling has fallen to $1.2764 in early trading, extending its losses from Monday.

That is its lowest level since June 1985, and almost 15 per cent weaker than before the EU referendum on June 23.

It also hit a three-year low of 87.51 pence per euro, down 0.2 percent on the day.

Despite the drop, the FTSE 100 share index has risen above 7,000 for the first time since May 2015.

Speaking at the Conservative Party's annual conference in Birmingham on Sunday, Theresa May has ended weeks of speculation and revealed that she will launch formal Brexit talks with EU leaders before the end of March 2017. The timing means the UK looks set to leave the EU by summer 2019.

Kathleen Brooks, a currency expert at City Index said: "The Tory party conference is turning into a sell for the pound, as FX traders get spooked by May’s apparent sanguine attitude to leaving the single market, preferring to focus on immigration and UK sovereignty rather than the economic fallout of Brexit.

"Phillip Hammond, the UK’s new Chancellor, didn’t help the pound either when he suggested that George Osborne’s fiscal rules will be abandoned and government spending increased. This is designed to cushion some of the blow from the UK’s departure from the European Union. However, it is likely to weigh on the UK’s already large budget deficit, which is another blow to the pound at the start of the new quarter."

Experts have warned that London’s position as a financial hub will be dealt a severe blow if the UK left the single market. However, that access is contingent on countries agreeing to let European Union citizens live and work anywhere in the bloc.

But speaking to delegates on Sunday, Theresa May claimed people who talk about a “trade-off” between controlling immigration and trading with Europe are looking at things the “wrong way”. Her strong stance towards the City adding to investors concerns about a so-called hard Brexit.

“I want it [the deal] to give British companies the maximum freedom to trade with and operate in the Single Market – and let European businesses do the same here.

Conner Campbell of SpreadEx said the prospect of a "hard Brexit" is hurting the pound: "It seems that it is going to be hard to provide a tourniquet for sterling’s recent wounds given the solidity of the newly announced Brexit timeline (with March set to go down in the history books as when Article 50 was triggered), and the firmness with which May stated her intention to chase border control even if it means relinquishing Britain’s position in the single market."

Ana Thaker, market economist at PhillipCapital UK, said the pound could slump as low as $1.25, or worse, as the process of leaving with the EU gets underway.

She said: "There is great uncertainty regarding how the Brexit negotiations will take shape and this could see a renewed bout of volatility in the currency.

"The Bank of England could also seek to stabilise markets if volatility continues but it remains to be seen how far Sterling could drop with the $1.25 being the next target level; whilst it could dip lower than this, there is likely to have to be significant developments for the pair to reach the $1.20 level."</s>Around 07:25 GMT, the pound struck $1.2757, the lowest level since 1985.

Sterling meanwhile traded at 87.56 pence to the euro - its weakest level since 2013.

The pound slumped to a 31-year low against the dollar on Tuesday on concerns over the timing of Britain's planned exit from the European Union, according to traders.

Britain's currency also struck a fresh three-year low point against the euro, while the drops helped pushed London's benchmark FTSE 100 stocks index up to a 16-month high beyond 7,000 points at the open.

Around 07:25 GMT, the pound struck $1.2757, the lowest level since 1985.

Sterling meanwhile traded at 87.56 pence to the euro - its weakest level since 2013.

"It seems that it is going to be hard to provide a tourniquet for sterling's recent wounds given the solidity of the newly announced Brexit timeline," said Connor Campbell, analyst at traders Spreadex.

"In terms of silver linings the pound's protracted demise has continued to lift the multinationals that make up the FTSE 100, leaving the index back above 7,000 for the first time in 16 months."

The FTSE rallied to a gain of 1.1 per cent at 7,060.46 points in early deals compared with Monday's close.

In the eurozone, Frankfurt's DAX 30 stocks index won 0.6 percent to 10,577.94 points compared with Friday's close. The DAX was shut Monday owing to a public holiday in Germany.

The Paris CAC 40 meanwhile opened Tuesday with a gain of 0.7 per cent at 4,485.41.

British Prime Minister Theresa May announced at the weekend that her government would start the process of leaving the EU within the next six months - possibly leading to Britain severing ties with the single market.</s>Sterling fell on Monday near a 31-year low against the dollar and to a three-year low versus the euro after a March deadline was set for the start of the formal process that will split Britain from the European Union.

The dollar, according to Reuters, strengthened against a basket of currencies on a private report that showed the U.S. manufacturing sector returned to expansion territory in September.

Among emerging markets, the Colombia peso tumbled as much as 3 percent against the greenback after voters on Sunday rejected a peace deal with Marxist FARC rebels, raising worries about the nation’s credit ratings and ability to embark on tax reforms.

In Britain, Prime Minister Theresa May told her Conservative party’s annual conference that she was determined to move on with Brexit and win the “right deal” in an effort to ease fears inside her party that she may delay the split with the EU.

“That caught the market by surprise with some people still hoping Brexit won’t happen,” said Mazen Issa, senior FX strategist at TD Securities in New York.

May’s Brexit comments came after the pound posted its worst run of quarterly losses since 1984.

The pound had dropped more than 1 percent against the dollar to as low as $1.2818 GBP=D4 before trimming losses in late U.S. trading. It was briefly less than half a cent away from the 31-year low it reached in early July, shortly after the June 23 vote to leave the EU. It was last down 0.9 percent at $1.2863.

Sterling also shed 0.7 percent against the euro at 87.18 pence after it hit 87.48 pence EURGBP=D4, its weakest since August 2013.

The greenback enjoyed a modest rise in light trading as some European and Asian markets were closed for holidays.

The dollar index was up 0.25 percent at 95.701 after the Institute for Supply Management said its barometer on U.S. factory activity rose to 51.5 in September, above the 49.4 in August and beating forecasts among economists polled by Reuters.

A reading above 50 indicates the manufacturing sector is growing.

While the overall ISM reading on factory activity was encouraging, it was not enough to raise expectations the U.S. economy is picking up steam.

“It’s not runaway support for the dollar,” TD’s Issa said.

Meanwhile, the Colombian peso tumbled to its weakest level against the dollar in two weeks after Sunday’s referendum rejected a peace deal between the government and FARC guerrillas.</s>Sterling slid to its weakest level in more than three decades against a dollar that was trading stronger across the board on Tuesday, hit by fears over the impact of Britain’s departure from the European Union.

The greenback reached a 13-day high against a basket of major currencies, helped by gains against the yen and by an upbeat survey of the US manufacturing sector that drove investors to increase their bets on a rise in US interest rates by the end of the year.

The pound had already shed more than 1 per cent the previous day on the back of British Prime Minister Theresa May’s announcement on Sunday that the formal process that will take Britain out of the EU will start by the end of March. It extended those falls on Tuesday, slipping more than half a per cent to $1.2757, its weakest since June 1985. That left it down 15 per cent since Britain’s June 23 referendum on EU membership. The euro was trading at £0.87478 early Tuesday morning, having hit three year lows on Monday.

Many in the market worry that the government’s stance points to a “hard Brexit”, in which Britain quits the single market in favour of retaining control over migration and which could drive an exodus of banks from London. “The headlines we’ve been seeing in the last few days...have been focusing the market’s attention on the big structural challenges that the UK is facing, particularly if it’s going to be ‘hard’ rather than a ‘soft’ Brexit,” said HSBC FX strategist Dominic Bunning, highlighting a report suggesting post-Brexit Britain would not be supportive of the financial sector.

Bunning said investors were worried that if Britain’s huge financial services industry takes a big hit from Brexit, that could help widen an already gaping current account deficit. While the turmoil in the days and weeks following the EU referendum spurred demand for safe-havens like the yen, analysts pointed out that the latest slide in the pound had yet to trigger similar reaction.</s>In 1985 Nigel Lawson believed sterling was so weak against the dollar that a major market intervention by central banks around the world was justified.

The then Chancellor signed the “Plaza Accord” in September of that year in New York on behalf of the Thatcher government. That landmark deal was designed to bring down the value of the US currency against a host of other major currencies, including the pound.

Fast forward 31 years and sterling is back down to those feeble 1985 levels against the greenback thanks to the Brexit vote – a cause for which Lord Lawson was a leading champion. Yet times change. Lord Lawson, today, seems content with sterling’s low level.

Other prominent Brexiteers are equally relaxed. Some have suggested sterling was overvalued going into the 23 June referendum – and that what we are witnessing today is merely a natural correction. Yet this was not something they said before the vote.

The strikingly optimistic GDP forecast from the maverick Economists for Brexit group presumed the level of the trade weighted sterling index would be 89.8 in 2016, moderating only slightly to 88.2 in 2017. The current level? 76.5.

In fairness, Nigel Farage did countenance the possibility that sterling could fall “a few percentage points” after a Brexit vote. The decline is, in fact, more than 10 per cent against sterling and the euro and still dropping.

It’s worth reiterating the implications of sterling’s rapid depreciation. It means more expensive holidays for Britons heading abroad – as many travellers will have already discovered the hard way.

Down the line it is likely to push up inflation sharply as the price of imports rises. This will squeeze the purchasing power of people’s wages. The Leave.EU website said leaving the EU “would mean money in your pocket”. It didn’t say anything about that money in your pocket being worth less.

There are, granted, countervailing positive economic effects too. Sterling’s depreciation has already increased the price competitiveness of the exports of UK businesses – and this seems to have boosted manufacturing order books since June.

But there are negative impacts on importers too. The cost of the dollar-denominated raw materials that many UK factories and business need is rising fast. And these costs will be passed on to British consumers in the end.

It’s also worth remembering that the large depreciation of sterling in the global financial crisis of 2008 was much less of a stimulus to our domestic exports than we hoped.

The truth is that it’s difficult to say with any degree of certainty what the net impact of currency depreciations will be for an economy and the living standards of its population.

A more useful exercise is to consider why the currency markets are reacting in this way, sending sterling down to a new 31-year low this week.

Is it because currency traders are embittered Remain supporters, selling the currency out of pique? This doesn’t seem very plausible given their job is to make money by anticipating changes in the market price of the currency.

Could financiers be manifesting their narrow worries about the survival of the City of London’s “passport” to sell services into the rest of the EU in the wake of Brexit? Are they allowing personal fears about the dire prospect of having to leave funky London to work in boring Frankfurt skew their judgement? Again, that doesn’t seem very plausible given they are liable to lose money if they trade on emotion.

Granted, markets can get things wrong. And they can overshoot. And it’s true that many things move currency markets, from domestic interest rate expectations, to money printing by central banks, to divergences in monetary policy between different states, to even big foreign takeovers.

Yet there was only one big piece big news on 23 June when sterling haemorrhaged all that value: the Brexit vote. And this week’s renewed downward lurch has coincided with Theresa May saying she will trigger Article 50 before next March and making it clear that she will not compromise on curbing EU immigration to the UK, something that strongly implies Britain will be out of the single market by 2019.

The fundamental reason for sterling’s descent is that traders believe there will be lower demand for sterling assets as a result of Brexit – that we will ultimately do less trade with the rest of the world and that we will be poorer as a result. Argue the markets are wrong if you want to – but recognise what they are saying.</s>Britain’s pound slumped to a three-decade low on Tuesday as its Brexit worries were compounded by a revitalized dollar, boosted by resurgent U.S. interest rate hike expectations.

Sterling dropped to its weakest since 1985, hit by a growing sense that the UK may be heading for a ‘hard’ Brexit where it severs links to the EU’s single market in favour of total control over immigration.

Robust construction data couldn’t prevent another 0.5 per cent fall for the pound as it extended Monday’s heavy tumble to wallow at $1.2764 and a three-year low of 87.51 pence per euro.

“It is now abundantly clear that access to the single market is not on (UK Prime Minister) Theresa May’s list of top priorities and the market is realizing that... there is more pressure for the pound in the weeks and months ahead,” said UniCredit’s Global Head of FX Strategy, Vasileios Gkionakis.

London’s FTSE cheered the idea of a weaker pound boosting firms’ exports though as it rose 1 per cent. Europe’s bourses all rose, with a 3.2 per cent jump from embattled Deutsche Bank also helping the mood.

Asian shares had finished higher too. Japan’s Nikkei leading the way with a 0.8 per cent gain after an upbeat U.S. manufacturing survey bolstered the dollar and lowered the yen.

Royal Bank of Canada said the data was helping stabilize its economic surprise index after a two-month run of negative surprises. Futures markets are now pricing in a more than 60 per cent chance the Fed inches up U.S. interest rates before the end of the year.

The dollar index, which tracks the currency against a basket of six major peers, hit a near 2-week high as it added 0.3 per cent to 95.970. It was last at 102.495 yen and worth $1.1171 per euro.

The main economic indicator this week is Friday’s non-farm payrolls report. Employers are expected to have added 170,000 jobs in September, according to the median estimate of 59 economists polled by Reuters.

Bond markets were mixed, with U.S. Treasuries steady at 1.62 per cent after two days of rises, UK Gilt yields nudging up to 0.75 per cent and southern euro zone yields squeezed higher as Italy announced it was selling its first 50-year bond.

Among commodities, crude oil futures took a breather following sharp gains overnight as Iran urged other oil producers to join OPEC in supporting the market.

U.S. crude was down 0.6 per cent at $48.52 a barrel after closing up 1.2 per cent on Monday. Brent was down 0.4 per cent at $50.68 after gaining 1.4 per cent overnight.

Gold fell to its lowest in over two weeks meanwhile, as the dollar’s strength dulled its appeal, leaving it as low as $1,307.15.

“Despite the fact that we saw different types of crisis from Deutsche Bank to Brexit, we can see that prices haven’t gone beyond the resistance at $1,350,” said Mark To, head of research at Hong Kong’s Wing Fung Financial Group.

“It is a pessimistic sign that even the speculators could not capitalize on the so-called bad news.”

Elsewhere, Australia’s dollar barely budged and its main share market ended 0.1 per cent higher after Australia’s central bank kept its main interest rate at 1.5 per cent after cuts in May and August.

“We think the case for no more cuts is strengthening,” said Paul Bloxham, chief economist Australia at HSBC. “Economic growth is strong, commodity prices have risen, and the drag from the mining investment decline is set to fade.”
Following the June 23 Brexit vote, the exchange rate for the British pound reaches a 31-year low against the United States dollar.