Expectations for more monetary stimulus sent Britain's top share index to a seven-week high on Wednesday, but investors cautioned those gains may be vulnerable if the euro zone debt crisis deepens further. Investors were beefing up their equity holdings ahead of the US Federal Reserve's expected decision to extend its bond-buying programme, dubbed 'Operation Twist' and aimed at shoring up the US jobs market.
The US central bank said after the European market close that it would buy $267 billion in longer-dated securities by the end of 2012. "We are positioned for Operation Twist to be mentioned in the Fed statement, so we're not selling before the meeting results, but we reinvested in equities two weeks ago so we have a good profit margin at this point," said Lorne Baring, managing director of B Capital Wealth Management.
"We still expect a bumpy ride as investors lack confidence there will be progress at the sovereign level in Europe. A worsening situation in Europe could cause us to take profit once more." Britain's FTSE 100 index rose 35.98 points, or 0.6 percent, to 5,622.29. Trading volumes totalled 96 percent of the 90-day average. The index was up around 360 points from a six-month low hit in late May, when poor US jobs data started speculation about further central bank support.
The Bank of England also signalled on Wednesday that it was close to releasing a wave of new money into the shrinking British economy because of the worsening euro zone debt crisis. Shore Capital expected such a move by the BoE would reverse some of the strength seen in sterling over the past six months, benefiting exporters from the UK. It highlighted global stocks such as chip designer Arm Holdings, engineer IMI and technology firm Smiths Group, which all gained between 2.3 percent and 2.6 percent on the day. Also on Shore's list was software company Sage Group, which rose 5.5 as it increased its global exposure by acquiring a 75 percent stake in Brazil's Folhamatic Group, leading brokers to upgrade their expectations for the stock.
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