Heavyweight commodity shares and defensive drugmakers helped lift Britain's top share index on Tuesday, the last full session of 2008, although it stayed on course to post the largest annual drop since its 1984 launch. The FTSE 100 closed up 73.33 points, or 1.7 percent, at 4,392.68, building on the previous session's 2.4 percent rise.
However, activity was light, with just over 427 million shares changing hands, lower than Monday's 441 million and last week's daily average of 511 million. The index has so far fallen 32 percent, on track to record its biggest annual drop in its history when the markets close at 1230 GMT on Wednesday.
"With valuations looking as they are at the moment, 2009 could be an opportunity to pick up cheap stocks with a five-year view," said Angus Campbell, head of sales at Capital Spreads. "But there are people who are in the minority at the moment who think stocks could get cheaper. After all the macro economic outlook for next year is pretty dire ... The question is have equities priced in the bad news that is going to come next year."
Oil producers contributed the most points to the index, with BP, Royal Dutch Shell, BG Group and Tullow Oil up between 1.1 and 3.7 percent. Miners also firmed, with BHP Billiton, Eurasian Natural Resources, Anglo American, Xstrata, Vedanta Resources and Antofagasta gaining 1.1 to 5 percent.
"Commodities and resources have had a seesaw year in 2008, but I still like that sector overall, particularly with oil in the $30 range," said Martin Slaney, head of derivatives at GFT Global Markets. "I like gold ... as a long-term investment." "But overall it is still pretty much on the back foot ... It's difficult to find much reason for buying into the market even at these levels."
Slaney said the FTSE 100 could dip below 4,000 again and did not expect the market to rally more than 10 to 15 percent from where it is and would struggle to break the 5,000 level.
Defensive pharmaceutical stocks gained, with many analysts expecting the first half of 2009 would remain tough for equity performance. The DJ European healthcare index has fallen nearly 19 percent so far this year, the best performer among the DJ Stoxx 600 sectors.
GlaxoSmithKline and Shire put on between 2.4 and 1.8 percent, respectively. Telecoms were also in demand, as Vodafone added 4.5 percent and BT Group rose 2.8 percent. Engine maker Rolls-Royce added 2.5 percent after it said it has won a compressor contract for a new Russian-European gas pipeline from a Gazprom subsidiary. Rolls-Royce was also given a $221.7 million engine contract from the US Navy.
Banks, which have been at the centre of the financial storm that is threatening to drag the global economy into a deep recession, were generally firmer as index heavyweight HSBC rose 2.2 percent. HBOS, however, shed 2.3 percent after the Financial Times said HBOS's pension scheme trustees may ask a judge to postpone Lloyds TSB's proposed take-over of the lender until "appropriate arrangements" have been made to guarantee the merged business will stand behind the fund.
HBOS said the merger with Lloyds, whose shares were down 1.2 percent, offered the best form of protection for its employees. Royal Bank of Scotland also fell.
The pound hit a record trade-weighted low as worries about a deteriorating UK economy pushed the currency to a 6-1/2 year low against the dollar and close to a record trough versus the euro.