Britain's top share index hit a three-month high on Friday, as better-than expected US non-farm payrolls helped markets recover their appetite for risk. Following a rethink by investors at the lack of action taken by the European Central Bank on Thursday, they focused on US data that showed a rise of 163,000 workers in July, the most in five months and exceeding expectations by more than 50 percent.
Other data showed the pace of growth in the vast US services sector edged up in July, with the ISM services index rising to 52.6 versus the 52.1 reading in June and above analyst expectations for a reading of 52. Renewed confidence in the world's largest economy helped UK stocks extend gains.
"The market is rallying on the back of that particular number as we had four (payrolls) numbers that missed expectations so this is the first one that exceeded them," said Killik Capital chairman Paul Kavanagh. While some investors had thought better-than-expected data could prove bad news for equities by reducing the chance of fresh stimulus by the Federal Reserve, markets took a different view, figuring the outlook for the US economy may not be as gloomy as feared.
The data "is telling (us) that the US economy is not really that recessionary on its own," said NCB investment strategist Bernard McAlinden. At close the FTSE 100 was up 122.76 points, or 2.2 percent, at 5,785.06, making its highest close in three months and posting its biggest one-day gain since early June. Volume was once again thin, at 82 percent of 90-day daily average.
While the FTSE could reach higher levels in the coming weeks, the index is likely to remain in the broader choppy range it has been for the last few years, as it still faces significant resistance, according to Barclays technical analyst Phil Roberts. "There has been a breakout to the upside but it is too early to be super bullish on it, as there is a lot of resistance at higher levels that could be very difficult to overcome," he said.
"Breaking above the July highs doesn't necessarily take us above the 6,000 but in the short term it does look like it can go a bit further, maybe at 5,836." International Airlines Group was the worse of two losers, dropping 5.1 percent after reporting a first-half loss and cutting its full-year earnings guidance, hit by slower spending on air travel amid the euro zone debt crisis and by high fuel prices.
The owner of British Airways and Iberia, and the fourth-biggest airline group by market value, also announced a wholesale restructuring of the underperforming Spanish airline. Meanwhile, banks, up 4.6 percent, were the best performers of the session adding 23 points to the index, as they rallied in line with their European peers, boosted by a higher risk appetite across markets.
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