LONDON — If this city were a stock, its price would be soaring. In the last five years, London has seen an explosion of hedge fund, private equity, and stock market activity, transforming the city into a formidable rival to New York’s Wall Street from merely a strong financial center.

“Hedge Fund Alley,” the nickname given to London’s Mayfair neighborhood, is where the crowd of money managers make their home during business hours and, often, late into the night. A one-time dockland, Canary Wharf, now teems with investment bankers from Citigroup, Lehman Brothers, and Morgan Stanley.

“The explosion of the hedge fund sector has led to the formation of lots of boutique asset management and hedge fund management companies,” a banking analyst in London for Standard & Poor’s, Nick Hill, said. “London is a central place to do that because there are already so many people employed in the financial sector.”

Since 2001, the number of companies to have gone public on the London Stock Exchange has increased fivefold, raising billions of dollars and fueling the image that finance firms must have a London address on their business cards. With American buyout firms such as the Blackstone Group, Kohlberg Kravis Roberts & Co., and the Carlyle Group pumping billions more into European companies, London is reaping the benefits and acting as a local home base.

“London has always been a leading financial center, but I believe now it is the leading financial center,” the head of international business development at the London Stock Exchange, Tracey Pierce, said.

Financial experts say the surge is being driven by several key factors. At the top of the list are the post-Enron toughening of federal regulations for businesses in America, which are prompting companies to go public in Britain, and the dramatic growth of European markets.

The head of the London office for the brokerage firm Churchill Capital, Steven Schlemmer, said the city is an ideal gateway to the rest of Europe. Its time zone, he said, means that those working in finance don’t have to wake up in the middle of the night for conference calls with their counterparts in Europe, as they do from New York.

“New York is the financial capital of the world, but not many people want to be based in New York if they are going to be buying European companies,” Mr. Schlemmer said.”You just can’t get on a plane and do your due diligence every time you want to visit a company. It’s just proximity.”

“London is considered to be local to the rest of the continent,” he said. “You can pretty much get to any major city in continental Europe from London in a two-hour flight.”

The city is not passing up any opportunities.The London Stock Exchange is marketing itself as an alternative for businesses that think America’s Sarbanes-Oxley Act of 2002 is too intrusive and expensive to comply with.

The tactic seems to be working. In 2005, none of the top ten initial public offerings, or IPOs, in the world were in New York. Just a few weeks ago, the Russian oil company Rosneft made one of the largest public offerings in history on the London exchange, raising more than $10 billion in one shot.

The head of the New York Stock Exchange, Marshall Carter, told a congressional committee in April that while American stock markets are stronger and more dominant than any other in the world, there has been a drastic decline in foreign companies raising capital in the U.S. and that European markets are “competing aggressively to expand globally and to take away U.S. market share.”

The president and CEO of the Partnership for New York City, Kathryn Wylde, said that during a lunch a few months ago her organization hosted for London’s socialist mayor, Ken Livingstone, Sarbanes-Oxley was one of his key selling points.

“I asked him what was London’s most important economy development strategy,” Ms. Wylde said. “He said Sarbanes-Oxley and went on to explain that Tony Blair, unlike our federal government, fully understands that a friendly regulatory environment is critical, especially to attracting mid-size and emerging companies that are just listing on exchanges.”

Ms. Wylde said her organization has a cooperative relationship with the London business community and that while the two cities are “in a sense competitors,” businesses are not forgoing a footprint in New York to be in London.

The relationship is so good that the Partnership for New York leases space in its Manhattan building to Think London, which opened an office in the city in March with the goal of attracting companies to locate and expand to the British capital.

“They don’t feel they are surpassing New York. They feel that they are competing to be the financial center of Europe,” Ms. Wylde said. “They see New York as a model in many respects.”

Some in London worry that because the country still uses the pound as its currency rather than the euro, it will lose out to the markets in Frankfurt, a major European financial hub.

The director of Think London’s North American operation, David Riches, was also careful to point out that the London and New York are partners, more than anything. He said the two were probably “neck and neck.” He also said that the American economy benefits when companies grow in Europe.

Some say London’s growth is simply part of a larger, organic global business boom.

Mayor Bloomberg’s deputy mayor for economic development, Daniel Doctoroff, dismissed the notion that any city was surpassing New York as a financial powerhouse. The former investment banker said that while London clearly benefits from expanding European markets and some foreign companies are wary of regulations and lawsuits here, virtually every economic index is stronger in New York and in America.

While he said he would “much prefer” more foreign companies to be coming to Wall Street, the jobs and money are in New York.

“I do not see it as coming close or surpassing New York,” Mr. Doctoroff said of London. “That said, anybody who is complacent and sits back and thinks their lead will last forever is a fool. We have to constantly be evaluating our competitive position and doing whatever we can to extend our lead.”

Mr. Doctoroff said that while New York does not have international offices to attract business, Bloomberg administration officials have visited “something like 500 companies” around the globe since taking office.

When asked whether he liked spending time in New York’s sister city, he said: “Yeah, I do,” but quickly added: “Obviously I love New York much more. I think there is an energy and an openness in New York that you don’t find anywhere else, which in a way is our longest standing competitive edge.”