Leading UK shares closed higher on Thursday, resuming their upward path after a brief pause on Wednesday, encouraged by strong earnings from chemicals firm ICI, although Shire Pharmaceuticals dropped after a setback to a key drug. ICI led the blue chips higher, jumping 11.8 percent on better than expected results and taking heart from an upbeat outlook, although some traders said the scale of the rise indicated a number of investors had been caught covering short positions and the gains could be whittled back in future sessions.
"A 12 percent rise does seem a bit excessive. It seems as though the hedge funds were running short positions. All of a sudden they're running in to close them but it could all be different tomorrow," said one trader.
Shire counterbalanced the ICI rise with a 10 percent drop, sliding after Canada suspended [nL10267653] Shire's top-selling Adderall XR attention deficit drug after the death of some patients, a move which prompted investment bank CSFB to cut its price target for the stock.
The FTSE 100 index closed 9.6 points higher at 5,000.0, reaching a fresh 2-1/2 year closing high and helped by gains on Wall Street after strong US jobless and trade deficit data.
Mike Lenhoff, Chief Strategist at brokers Brewin Dolphin, said the FTSE's 3.5 percent surge since late January had been fuelled by strong earnings and dividends, corporate share buybacks and bid talk, but added shares were beginning to look overbought.
"The market has so much going for it I'm almost beginning to wonder whether it's time to reflect on that right hander that we won't see," said Lenhoff.
"We're into an overbought position as far as the FTSE 100 is concerned, so at some time I would have thought momentum would fade. There may be a couple hundred points more in the market and then I think we're going to top out and trade sideways," he added.
News that the Bank of England left interest rates unchanged at 4.75 percent for a sixth consecutive month was widely anticipated and had little impact on share prices.
Shares in Britain's third-biggest bank Barclays dipped 0.1 percent even though it posted a 2004 profit gain in line with expectations. Analysts said they were concerned that higher profits at the bank were helped by a reduction in low debt provisions.
Elsewhere in the banking sector Royal Bank of Scotland closed 2.3 percent higher, with traders reporting switching to the bank from Barclays.
Engine maker Rolls Royce was another laggard, down 2.6 percent despite topping analysts' forecasts with its annual profits. Its dividend was unchanged, however, and analysts at Merrill Lynch said that could be taken as a disappointment.
Shares in drug giant GlaxoSmithKline had a sluggish session, finishing up 0.3 percent as the firm reported a 9 percent fall in last year's earnings, but balanced that with its prediction of a recovery in 2005 and a positive view of its new drug pipeline.
Hotels group Hilton featured on the upside with a 3.3 percent rise after Deutsche Bank upgraded it to "buy" and said "substantial levels of cash" could be given back to shareholders as earnings at the group recover.
Fellow hotel chain De Vere also caught the attention of investors after it agreed to sell its renowned golfing venue The Belfry for 186 million pounds and return cash to shareholders. The news sent its shares rocketing more than 12 percent to the top of the FTSE 250 index gainers' list.
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