Cyclicals lifted Britain's top shares above 5,800 points for the first time since May on Monday as investors bet on eventual European Central Bank action to curb high peripheral bond yields, although low volumes showed not everyone was convinced. The FTSE 100 extended gains from last week, helped by strong performances in mining and energy, although uncertainty over the detail and timing of any ECB action kept some on the sidelines, adding to the thin seasonal trade.
"We have come up so far and so fast on no real progress. I am very cautious about going all in this revival in the market. Everything depends on the European authorities and in particular Mario Draghi following through with promises," said Charles Stanley analyst Jeremy Batstone-Carr.
The FTSE 100 ended up 21.49 points, or 0.4 percent, at 5,808.77 after hitting its highest point since early April in intraday trade before coming off slightly into the close. Volume remained weak at 71 percent of its 90-day daily average. Knight Capital strategist Ioan Smith said the thin volumes and lack of detail from European policymakers was keeping him on the sidelines.
"Unless the ECB gives us details I don't really want to use it (the market rally) as a basis to make an investment decision," he said. Heavyweight mining and energy stocks were among the session's best performers and provided the index with the most support, adding a combined 13.5 points.
Rio Tinto, up 2.6 percent, added most points to the index, closely followed by BG Group, up 1.8 percent. While gains for heavyweight mining firms helped the pan-European STOXX Europe 600 Basic Resources index add 1.3 percent by the close, it still remains the worst performing sectoral index in the year to date, down 2.4 percent.
"I am still extremely wary about putting too much faith into pro-growth cyclicals, as I don't think that promises of action are the same as genuine progress," said Batstone-Carr. Marks and Spencer (M&S) was among the top gainers for most of the session, outperforming all other retail stocks, with traders citing weekend press speculation that it could become a bid target.
The British high street heavyweight rose 1.9 percent in volume at 124 percent of its 90-day daily average. Astec Analytics analyst David Lewis said demand to borrow the stock to sell short had increased in recent days and could indicate a willingness by some to position for a price reversal if a bid fails to materialise.
The number of M&S shares out on loan has increased by almost a third since its results in mid-July and is now at 18 percent, against an index average "in the low single digits", Lewis said. "A rising balance on loan given the take-over rumours suggests that there is an element of the market that is positioning itself to take advantage of the currently boosted share price falling back as the rumour runs out of steam," he said.