Britain's top share index hit fresh five and a half year highs on Friday, as banks were buoyed by an upgrade, the prospect of the end of state ownership in the sector and rotation out of defensive stocks. The FTSE 100 closed up 35.26 points, or 0.5 percent, at 6,723.06, just 0.1 percent off October 2008's closing high and marking the index's fourth successive week of gains.
---- Lloyds and RBS gain on 'breakeven' price boost
Banks combined to add 18 points to the index, benefiting from an upgrade by UBS and led up by Lloyds and RBS. The banks, which both received state help during the financial crisis, gained 3.2 and 5.7 percent respectively after Lloyds broke through the 61.2 pence level which the government regards as breakeven on its 20.5 billion pound ($31 billion) rescue.
"The prospect of both of those banks being released from the taxpayers clutches is helping sentiment in the whole area," Mike van Dulken, head of research, said. Friday saw a volatile day of trade as options expired mid-morning, with buying pressure to lift the index above 6,650 and 6,700 levels, where there were a lot of open "call" positions. As a right to buy the index at a certain level, these positions would be worthless if the index was below that level when the options expired. Options expiry has seen investors abandon hedges against falls in European indexes, and extend bets on future rises in an asset class which has rallied on the back of easy monetary policy.
Friday's session began on a weaker note after a Federal Reserve official said the central bank could begin to slow its monetary stimulus this summer. However good US data on Friday was received well by the market, despite the possibility that it will accelerate the Fed's tapering of purchases.
"People are a bit unsure about how to read the Fed yesterday, because this whole market rally is caused by central bank intervention, and they're beginning to hint that it won't be there... but it will only be withdrawn if the economy is good," Joe Rundle, head of trading at ETX Capital, said. "The momentum is completely on the upside, and people are just trying to get into this market now... Any little pullback is a great opportunity to get back involved."
On the down side, Goldman Sachs downgraded food and beverages to underweight and personal and household to neutral. These sectors combined with other defensive plays in utilities and health care to be the biggest weights on the index. The top individual faller was miner ENRC, which slid 8 percent in afternoon trade after a report that the group's trio of founding shareholders had submitted a letter detailing an offer below 300 pence per share.
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