Britain's top share index gained strongly on Tuesday, posting its biggest one-day percentage gain for 16 months, boosted by a rally from commodity stocks and advances by banks on increased hopes that European leaders will take decisive action to alleviate the region's debt crisis encouraged investors.
European Central Bank policymakers said on Monday officials were working to boost the firepower of the EFSF financial rescue fund to try to alleviate a crisis that US President Barack Obama said "is scaring the world". Banking stocks, among the most sensitive to the twists in the eurozone debt saga, extended Monday's gains, led by Royal Bank of Scotland and Barclays, up 7.1 percent and 5.6 percent respectively.
"There does seem to be a slightly bizarre excuse behind the gains today - rumours that Europe will expand the EFSF. If so, it's a rally built on hope rather than anything concrete. But to be honest, it is mainly to do with our old friend "end-quarter window dressing", as it's been such a big quarter," said David Morrison, market strategist at GFT Global.
The FTSE 100 index closed 204.68 points, or 4.0 percent higher at 5,295.05, its biggest one-day percentage gain since May 2010. As a turbulent month and quarter draw to a close, the blue chip index was currently down about 2 percent in September, and had fallen by around 11 percent since the end of June.
"Technically speaking were pretty much still stuck in a range of 5,400 to the topside and 5,050 at the bottom. We are also almost smack on the 38.2 pct Fibonacci retracement level of 5,260-70 from the sell-off in August this year, so there should be a little cheer if we close above that," GFT's Morrison added.
Miners were the biggest blue chip gainers, having been the major fallers on Monday, with Antofagasta standing out, up 10.7 percent, as copper rebounded from a 14-month low hit in the previous session. The gold price also rallied after recent sharp falls, helped by an easier dollar, with Fresnillo adding 10.3 percent as Citigroup upgraded it to "hold" on valuation grounds.
Vedanta Resources was the top FTSE 100 gainer, ahead 11.8 percent. The board of India's state-run Oil and Natural Gas Corp has decided to issue a no-objection certificate for Vedanta's deal to buy a majority stake in oil and gas explorer Cairn India.
The stake seller Cairn Energy gained 5.2 percent. Other energy issues also pushed higher as crude rebounded over 4 percent higher, with BP and BG Group up 5.2 percent and 6.7 percent respectively. US blue chips were 2.5 percent higher by London's close, taking their cue from Europe's gains.
Among individual blue chip risers, engineer Weir Group added 5.8 percent as Goldman Sachs reiterated its "Conviction Buy list" rating on the stock, which was the worst performer in its Capital Goods universe last week. On the second-line, emerging markets doorstep lender International Personal Finance was the top FTSE 250 gainer, up 14.7 percent after J.P. Morgan Cazenove upgraded its rating to "neural" from underweight" on valuation grounds.
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