Britain's main share index rose for the fourth consecutive day on Tuesday on hopes of new measures to tackle Europe's economic crisis, although traders said the rally could be short-lived due to persistent fears over the region's debt troubles. The benchmark FTSE 100 closed up 34.80 points, or 0.7 percent, at 5,391.14 points - its highest close in a week.
A recovery in heavyweight mining stocks, which have fallen sharply in recent weeks, boosted the overall index and offset weaker banking stocks, with Royal Bank of Scotland and Lloyds falling on fears of the sector's exposure to the troubled economies of Greece and Spain.
However, trading volumes on the FTSE 100 were at just 79 percent of their average 90-day volumes. Dealers said this indicated investors' reluctance to buy equities due to the ongoing uncertainty over the euro zone debt crisis. "We need a much clearer direction from politicians. It's making it very hard to trade," said EGR Broking managing director Steven Mayne.
Mayne said he had bought some mining stocks as well as shares in hedge fund company MAN Group and British bank Barclays following a sharp decline in those stocks. Steel producer Evraz was the best-performing FTSE 100 stock, rising by 4.3 percent, while the FTSE 350 mining sector gained by 2.1 percent. Man Group advanced by 1.6 percent and Barclays closed unchanged.
"You can see some value in these stocks in the short-term, but you might only be holding onto them for three or four days," added Mayne. Traders said the market rally had been sustained by renewed speculation that the European Central Bank (ECB) would take steps to support the region's banks.
Hopes that China would announce new initiatives to fight a slowdown in its economy also boosted global equity markets. However, the FTSE 100 index has failed to make much headway beyond 5,400 points, with traders tending to sell the index at that level on the view that worries over Europe's economic crisis will still cause the index to fall back again.
Concern remains that Greece, which holds new elections on June 17, may have to leave the euro zone while problems with Spanish bank Bankia, which has asked for a 19 billion euro bailout, have hit Spain's economy. Worries over Spain were highlighted in the bond market, as investors moved over to safe-haven US Treasuries while Spanish 10-year government bond yields rose.
"What we need to see for a sustained rally is a calming down of bond yields in the EU periphery. There are too many things coming out of the woodwork to justify a sustained bounce," said CSS Investments analyst Ravi Lockyer. Lockyer expected the FTSE to trade within a tight range between losses and gains of around 150 points while the European debt crisis remained unresolved. "People are trading around the edges at the moment. They're taking advantage of any uptick in share prices to quickly trade out of positions," said Central Markets chief strategist Richard Perry.
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