FTSE hits new five-week high; mid-cap Serco slumps

Britain's top share index advanced to a five-week high on Monday as investors bought into the consumer staples and retail sectors, with supermarket group Tesco leading the gainers. The stand-out mover of the day however was mid-cap services outsourcer Serco, whose shares fell 32 percent after saying it plans a rights issue of up to 550 million pounds, having cut forecasts and written down the value of its business.
-- Dividend cut speculation hits Sainsbury
"They've lost a third of their stock market value in just a matter of hours. Investors are looking for certainty at the moment, so when companies disappoint expectations, the market takes no prisoners," Charles Stanley market analyst, Jeremy Batstone-Carr, said.
Despite early underperformance, the mid-cap FTSE 250 index rose 0.9 percent, while the blue-chip FTSE 100 closed up 44.01 points, or 0.7 percent, at 6,611.25, its highest level since October 1. Tesco and sector peers Marks & Spencer and Morrisons were all among the index's top gainers, with Sainsbury down 2.7 percent - the biggest faller.
Traders said that investors were selling Sainsbury's stock before results, due out on Wednesday, amid fears that the supermarket may cut its dividend, prompting Cantor to cut its target price on the stock. Tesco, down 16 percent since a profit warning and accounting scandal in September, rose 4.6 percent, to be the top FTSE riser, benefiting from an upgrade to "outperform" by Bernstein.
Bernstein analysts say there is "little they can do wrong in the next two years that isn't in the price yet". Early enthusiasm for miners had largely dissipated by the close, as investors favoured less risky sectors. The sector had supported the market after data showed Chinese inflation remained near a five-year low and annual growth in exports and imports slowed in October, fuelling hopes of policy support from the government.
However, consumer staples, which are less vulnerable to economic swings, added 16 points to the index as traders picked up more defensive stocks. "I'm more inclined to favour reliable growers with healthy dividends. The medium-term outlook is not clear enough to add risk to portfolios," Batstone-Carr said.