FTSE extends winning run

04 Nov, 2005

Britain's FTSE 100 index on Thursday closed back above the 5,400 level for the first time in a month, buoyed by a clutch of well-received UK trading figures and better-than-expected US data that calmed inflation concerns.
Chemicals group ICI jumped 6.6 percent after announcing forecast-beating third-quarter earnings and saying it had enjoyed good trading in relatively difficult conditions. Analysts welcomed news that the company had increased prices by 4 percent over the quarter, covering its higher costs.
Sugar and sweeteners firm Tate & Lyle was close behind ICI, jumping 6.1 percent, with traders reporting that buyers scrambled to cover short positions as its first-half results came in above expectations.
The FTSE closed up 73.3 points, or 1.4 percent, at 5,431.9, scoring its fifth straight day of gains and extending its advance over the past week to around 250 points as it continues to rally after touching a recent low of 5,130 on worries over inflation.
"FTSE had that period of retraction, and people think that was overdone. The economy looks pretty strong, and there's nothing really to worry about," said Geoff Langham, head of trading at online brokers CMC Markets.
The FTSE built on early gains after US data in the afternoon showing an increase in productivity and an unexpected drop in labour costs, which damped down recent worries over inflation.
"The unit labour cost data is quite reassuring. There's been an awful lot of noise about inflation concerns, a lot of which have been spurious. Far too much focus on headline inflation, which has been hugely influenced by the oil price," said Eric Lonergan, a strategist at Cazenove.
"It (the data) suggests that corporate America is still in good shape and labour costs are under control. That spells good news for the bottom line and, in turn, that is favourable for stocks," said Philip Shaw, economist at Investec.
Later data showing an increase in the US service sector supported US shares and gave further support to the FTSE.
The index has now rebounded nearly 6 percent from its recent lows and is targeting early October's four-year highs around 5,500 on speculation of fresh M&A activity to come after this week's flurry of bids.
Pest control to security company Rentokil Initial was another strong gainer, up 4.5 percent to 156-3/4p after it reported higher margins in the third quarter and said profit was falling less quickly during the period.
"We would look for buying opportunities, given the recovery now taking place," Panmure analysts said on Rentokil, as they raised their price target on the stock to 160 pence per share.
Drugs shares gained after news that US pharmaceuticals company Merck was not found liable for the death of a person using painkiller Vioxx, potentially heading off future liability claims. GlaxoSmithKline rose 1.4 percent and AstraZeneca 1 percent.
Unilever, the maker of Dove soap and Hellmann's mayonnaise, was left out of the advance, falling 3.5 percent. Investors took an expected dip in third-quarter profits in their stride but reacted to news that it failed to increase prices and its margins were down.
Among the mid-caps, mail operator Business Post was up 9.6 percent, with traders reporting vague bid talk.

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