UK's top share index rises

Britain's top share index ended 1.2 percent higher on Tuesday, as results from the largest US investment bank Goldman Sachs helped lift banking stocks, while firm commodity prices boosted the mining and oil sectors. The FTSE 100 closed up 67.3 points at 5,861.9, with investors interpreting Goldman's results as meaning the financial sector outlook was not that grim.
Barclays rose 3.5 percent, while HSBC edged up 0.2 percent. Goldman said quarterly earnings fell 11 percent as turmoil in debt markets slowed investment banking activity and eroded trading profit, but the results were encouraging during the worst environment seen in decades. Goldman largely avoided the massive losses that have hit Lehman Brothers Holdings Inc and other rivals, but business overall has slowed from last year's record levels.
"The market basically rallies on the back of the Goldman Sachs figures. They were pretty good," said Jawaid Afsar, a trader at Securequity. "There was a relief for the financials ... obviously taking a new leg higher. The economic data coming (from) the US are pretty much in line," he added.
A higher-than-expected reading of overall US producer prices failed to dent the market's gains, with traders focusing instead on data showing core inflation, which excludes volatile food and energy prices, moderated as economists had forecast.
The FTSE also shrugged off British consumer price data that came in at its highest since the series began in 1997. Yet the Bank of England's letter to the government on inflation later in the day helped temper market expectations for rate rises.
HBOS rose 3.4 percent as investors unwound some of their extreme short positions on the lender ahead of a trading statement expected this week. The unwinding also came ahead of planned disclosure rules from Britain's financial watchdog on short positions in companies undertaking rights issues.
"The banks have been very strong today. Dresdner upgraded some banks and that helped the whole sector," said Mark Priest, a senior trader at TradIndex. Royal Bank of Scotland closed 2.7 percent higher after Dresdner Kleinwort upgraded the bank to "add" and reiterated its "buy" rating on Lloyds TSB. Lloyds shares were up 2.4 percent.
Traders said the UK market was also helped by reports that the US Federal Reserve was unlikely to raise interest rates in the next few months unless the inflation outlook worsened.
A Reuters poll this month showed all 15 primary dealers expected the Fed to leave rates on hold at its June meeting. In the commodities sectors, miners benefited from firm metals prices, with Eurasian Natural Resources gaining 6.2 percent. BHP Billiton, Vedanta Resources, Lonmin and Kazakhmys gained between 2.3 and 4.4 percent.
Rio Tinto rose 3.5 percent, helped by an Australian newspaper report saying China's state-owned aluminium giant Chinalco was keen to buy a range of global resources assets and may consider raising its stake in the company. Oil shares also gained, with BP rising 0.9 percent, Royal Dutch Shell and gas utility BG Group both adding around 1 percent.