A rally by recently beaten-down banks and commodity issues hauled Britain's top share index higher on Tuesday, although many traders doubted whether the gains could hold. "Dead cats are proving pretty elastic ... It is most likely that any hedge funds shorting stocks over the (banks) stress tests are back in and buying to cover their shorts.
But like a hug that does not last very long, this rally lacks conviction," said Louise Cooper, markets analyst at BGC Partners. At the close, the FTSE 100 index was 37.18 points or 0.7 percent higher at 5,789.99, recovering almost half of the sharp falls recorded in the previous session.
The UK blue chip index had shed 5 percent over the previous eight trading days as worries over the potential for debt default among some eurozone countries and threats to the United States' top credit rating weighed on sentiment. Miners bounced, tracking firmer metal and oil prices, and helped by positive comment from BofA Merrill Lynch, which argued that gold equity plays looked particularly cheap given the sharp rise in the precious metal.
Johnson Matthey, a major consumer of precious metals as the world's largest supplier of catalytic converters, was a top blue chip gainer, up 4.0 percent as it said its first-half performance would likely be significantly improved after a 19 percent rise in first-quarter profit.
Banks rallied, with the sector having hit two-year lows on Monday as analysts questioned the credibility of last week's European bank stress tests, and with ongoing concerns over lenders' exposure to the region's debt problems. Lloyds Banking Group was the top performer, up 4.3 percent, having been among the top fallers on Monday. Lloyds has poached Nathan Bostock, one of the top executives at its rival Royal Bank of Scotland, to lead the reshaping of the part-nationalised bank's wholesale division.
RBS added 0.4 percent.
A continuation of the US banks reporting season proved mixed as Bank of America Corp saw its second-quarter earnings beat expectations, but Goldman Sachs' earnings came in below forecasts. However, a batch of other strong earnings reports, notably from IBM, helped US blue chips add 0.9 percent by London's close, supported too by above-forecast June US housing starts.
Among individual UK gainers, BSkyB added 2.9 percent as J. P Morgan Cazenove raised its price target for the satellite broadcaster ahead of results due on July 29, saying it expected resilient operating results, with higher potential cash returns.
The British pay-TV company's shares have fallen sharply since News Corp withdrew its bid in the wake of the phone hacking scandal engulfing Murdoch's organisation, with both Rupert and James Murdoch facing tricky questions from a House of Commons' Committee on Tuesday afternoon. On the downside, British Land was the top blue chip faller, down 1.1 percent as Goldman Sachs cut its rating for the property firm to "neutral" from "buy" on valuation grounds.
"Yet more consecutive closes for the UK Index back above resistance levels of the 5,800 and 5,860 levels will be required to convince traders that the recent sharp equity falls may be only temporary," said Joshua Raymond, chief market strategist at City Index.
Comments
Comments are closed.