Britain's top share index ended 1.5 percent higher on Friday, led by a rally in UK banking stocks and supported by strength on Wall Street ahead of a vote on a $900 billion US stimulus package. At the close, the FTSE 100 was up 62.94 points at 4,291.87, posting a fourth straight day of gains to give a near 3 percent rise over the first week of February.
But the index is still down around 3 percent this year after losing more than 31 percent in 2008. US blue chips were up 2.3 percent by London's close on hopes that dismal US jobs data will speed up Congressional approval of President Obama's economic stimulus plan. US employers slashed 598,000 jobs in January, the deepest cut in payrolls in 34 years as the unemployment rate rose to 7.6 percent, according to a Labour Department report on Friday.
"That big US jobless number has added weight to calls for the US to rush through the bail-out plan so progress in the Senate will be closely watched in that regard tonight," said Jimmy Yates, senior dealer at CMC Markets. Banks led the UK blue chip gainers as investors pondered how their so-called "toxic assets" will be managed after the stimulus package is passed.
Royal Bank of Scotland, Lloyds Banking Group, Barclays, and HSBC were up between 1.6 and 9.1 percent. Credit Suisse strategists raised their weighting for UK banks to "benchmark" on valuation grounds and hopes for the implementation of an effective asset insurance/bad bank scheme. Banking issues also got a boost after a discussion document published by the Financial Services Authority (FSA) proposed disclosure requirements for significant short positions should be introduced for all UK-listed stocks.
The ban on the short-selling of financial issues, which ended last month, was the trigger for the regulator's paper. Engineering group Invensys was the top FTSE 100 riser, up 14.3 percent as traders pointed out that the stock has been a favourite target for shorting on the view it is close to breaking banking covenants. UBS also started coverage on Invensys with a "buy" rating earlier this week.
Heavyweight miners were in demand on Friday supported by firmer metals prices, with Anglo American, Xstrata and Rio Tinto up between 3.9 and 6.5 percent. Oil issues also gained, ignoring weaker crude prices, with BP, BG Group and Royal Dutch Shell up between 1.7 and 3.5 percent. British Airways also stood out, up 10.5 percent helped by the falling oil price despite posting a nine-month pretax loss of 70 million pounds ($102.4 million).
The airline reaffirmed its full-year revenue guidance for at least 4 percent growth year on year. Investors shrugged aside some dismal domestic data which showed British industrial production and manufacturing output both fell sharply in December, posting their largest annual fall since 1981, a further sign that the economy is shrinking fast. Separate data showed UK producer price inflation was stronger than analysts had forecast.
"I think the markets have now got to the point where they feel more or less satisfied that they've priced in a lot of the bad news," said Mike Lenhoff, chief strategist at Brewin Dolphin. "What they are looking for are hopeful signs that we'll see our way through this recession."
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