Britain's blue chip index gained 0.8 percent on Tuesday to snap a three-session losing run, led by Royal Bank of Scotland on stake building chatter. The FTSE 100 closed up 50.1 points at 6,057.7 in a volatile session, while European shares also finished the day higher, helped by stronger-than-expected US factory orders.
"The best we can hope for is a period of stability. Arguably that's what the market needs. I don't see catalyst for any immediate uplift in the FTSE 100," said Tim Whitehead, head of portfolio services at Redmayne-Bentley. "Equally, I am perfectly content if the market just goes treading water for a while and lets a bit of confidence return. Investors are still jittery."
Royal Bank of Scotland (RBS) soared 8.3 percent as traders cited market talk of buying by British activist fund the Children's Investment Fund (TCI), and a short squeeze ahead of the bank's rights issue deadline on Friday. RBS declined to comment, while TCI was not immediately available for comment.
Dresdner analysts said in note that they had a growing feeling that the recent RBS pressure was driven by technical issues. "Today we add the stock to our core portfolio." Dresdner analysts said in a note. "(But) Still a reduce as the fundamental outlook remains unappealing, but with a growing chance of a strong rebound."
The rest of the sector was generally firmer after embattled lender Bradford & Bingley (B&B) slumped 24 percent on Monday after it slashed the price of its emergency fundraising and issued a profit warning.
Lloyds TSB added 3.1 percent, HSBC tacked on 0.4 percent and B&B rebounded 1.9 percent. On the other hand, Barclays shed 1.4 percent, Alliance & Leicester lost 0.7 percent and HBOS dropped 2.3 perecnt. All eyes will focus on the Bank of England's interest rate decision on Thursday, and analysts expect the central bank to keep rates unchanged at 5 percent. Miners were weaker, with BHP Billiton, Rio Tinto, Xstrata and Vedanta Resources, Antofagasta losing between 0.4 and 3.2 percent.
Kazakh mining group Eurasian Natural Resources lost 5.3 percent to top the FTSE 100 losers as traders cited market talk that take-over rival Kazakhmys may sell its stake in the company. Kazakhmys, whose shares rose 1.6 percent, was not immediately available for comment. Further on the upside, British Energy advanced 2.2 percent, extending Monday's 3 percent rise, on persistent market talk of bid interest.
Home Retail added 6.4 percent after Seymour Pierce raised its rating to "buy" from "hold". Fellow retailer Carphone Warehouse put on nearly 4 percent. BG Group strengthened 1.9 percent as Brazil's state oil company Petrobras was set to receive the first shipment of liquefied natural gas for its Pecem terminal in July, which is supplied by the British company.
Engineer and project manager AMEC climbed 4.2 percent after it agreed with BP to provide engineering and project management services for the oil major's offshore developments around the world. BP was flat. Imperial Tobacco and Britiah American Tobacco rebounded from the previous session's sell-off, up 2.9 and 1.3 percent respectively.
Housebuilder Persimmon was down 2.4 percent. A survey showed British construction activity dropped last month at its sharpest pace in at least a decade as falling house prices and tight credit took their took.
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