Britain's blue chip FTSE 100 index closed sharply higher on Tuesday, as better-than-expected results from Standard Chartered cheered battered banks and falling crude prices eased inflation concerns. The commodity-heavy index closed up 134.3 points, or 2.5 percent, at 5,454.5, snapping a three-session losing run, though the benchmark index is still down 16 percent so far this year.
"Today's strong performance is very much the result of weakening oil prices (but) should we be optimistic going forward?," said Tim Hughes, head of sales trading at IG Index. "If the pessimism of late has been largely driven by the exponential growth in the oil price and oil continues to ease, then that is a boost to a majority of companies operating which are threatened by persistently higher oil prices."
Banks topped the FTSE gainers list, with Standard Chartered surging 8 percent after a 31 percent jump in first-half profit. The bank said although Asian growth was likely to slow, it would continue to easily outpace western economies. Royal Bank of Scotland gained 7.2 percent, Barclays was up 8.8 percent, HBOS soared 12 percent and Lloyds TSB spiked 10.7 percent. Banks across Europe were also helped by results from Societe Generale which were not as bad as feared.
Elsewhere Swiss Re, the world's largest reinsurer, agreed to buy Barclays' life assurance portfolio for 753 million pounds ($1.5 billion) in cash. "If oil continues to weaken, it is a bit of a stimulus for the economy. It takes the heat off bad debt for the banks," said Mike Lenhoff, chief strategist at Brewin Dolphin. But analysts and traders said it was too early to be truly optimistic as the underlying situation had not changed.
"You still have a caution among a majority of investors because the outlook remains very uncertain and we continue to look down the barrel of these kind of big problems of slowing growth and inflation," Hughes said. Britain's services sector shrank for a third straight month in July, but the pace of contraction slowed unexpectedly even as new business declined at the fastest rate in the survey's 12-year history.
Investors trained their sights on the US Federal Reserve, which is expected to announce at 1815 GMT it is keeping interest rates unchanged at 2 percent. The Bank of England is due to announce its rate verdict on Thursday and is also expected to stay on hold. Mining stocks fell, tracking a decline in base metal prices. Copper hit a six-month low and zinc touched a 2-1/2-year trough on worries that a global economic slowdown will dent demand for industrial metals.
Both BHP Billiton and Rio Tinto fell about 1 percent, Xstrata shed 1.3 percent, Eurasian Natural Resources slipped 4.8 percent and Ferrexpo fell 4.3 percent. But Anglo American, Antofagasta and Vedanta rose between 1.1 and 3.3 percent. Shares in building materials group Wolseley jumped nearly 15 percent to top the FTSE 100 as traders cited market talk of possible sale of its US operations.
Wolseley was not immediately available for comment. Britain's Legal & General rose 12 percent after it topped forecasts with a 6 percent rise in first-half operating profit, as annuity sales more than offset the impact of a weakening economy and turbulent markets. Recruitment company Michael Page soared 33 percent after Swiss rival Adecco made a bid approach for the group.
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