Shares outlook is tempting: With stock market confidence soaring and recovery in the air, Maria Scott sees strong arguments for switching out of low-yielding deposit accounts

INVESTING in the UK stock market now poses little more risk to investors than keeping money on deposit.

This is the conclusion investors may draw from the new records set by share prices on the London Stock Exchange this week and from continuing optimism among advisers and analysts about prospects for the market.

'Our year-end target for the FT-SE 100 share index is 3,300, which is another 400 points away,' said Michael Lenhoff, portfolio strategist with the private client stockbroker Capel-Cure Myers.

Simon Corbett, head of the UK investment management division at another stockbroker, James Capel, said: 'We are holding out for an FT-SE level of 3,200 at the end of the year. I think the market has the bit between its teeth.'

Malcolm Murray, managing director of Foster & Braithwaite Investments, said: 'In the short term, up to the Budget, it could move anywhere. But looking beyond the Budget, the outlook is good. Company profits will be up 20 to 30 per cent, on average, this year.

'Those profit increases are already reflected in the market to a certain extent but it will not be long before it is looking forward to 1994. We think the profit increases will continue through next year.'

Eric Hathorn, research director at Henderson Crosthwaite, is slightly more cautious, predicting simply that the index will be 'above 3,000'.

But even cautious UK market- watchers are not expecting it to end the year dramatically down on its present level. Longer-term, they expect share prices to be underpinned by economic recovery.

The record highs achieved this week by the FT-SE 100 and by the FT-SE 250 index, which reflects price movements in medium-sized companies, were prompted by statistics indicating that the recovery may finally have started.

Barclays Bank's pounds 242m loss apart, there was some good news from the troubled banking industry, with Midland increasing profits, and from insurance, where Guardian Royal Exchange returned to profit.

All of this will inspire confidence among investors wavering about whether to switch money out of low-yielding deposit accounts into shares.

The yield on the FT-SE 100 index is now a little over 4 per cent, a return that even the best-paying building society accounts are hard-pressed to match for basic- rate taxpayers, let alone higher- rate ones. Some analysts think interest rates will fall further.

With the UK market looking healthy, there are strong arguments for investing in a personal equity plan before the end of the tax year on 5 April. Each investor has an individual PEP allowance of pounds 9,000 for this tax year, pounds 6,000 of which can go into investment trusts and unit trusts. Trusts must have a UK or European content of at least 50 per cent to be eligible for PEPs.

Even the most optimistic market observers are anxious to remind novice investors, however, that putting money into a PEP is not without risk. 'We like the look of the UK market but it could still take fright and it will not necessarily move up in a straight line,' warned Jonathan Ruck Keene, a director of Mercury Asset Management.

Mr Hathorn at Henderson Crosthwaite points out that investors who want to balance their UK investment with some overseas exposure have access, through a self- select PEP, to many large UK companies with overseas earnings.

'Grand Metropolitan or Hanson would be examples of such companies,' he said.