Britain's top share index rose at midday on Wednesday, building on a six-week high hit the previous session as investors positioned for more monetary stimulus from the Federal Reserve and the Bank of England.
Traders said investors were adding slightly to their long positions or covering shorts in cyclical sectors as they factor in growing expectations that the Federal Reserve will extend its bond-buying programme, dubbed 'Operation Twist', when it announces its monetary policy decision at 18:30 SA time.
The Bank of England also appears to have moved closer to launching a new round of monetary stimulus to mitigate the effects of a worsening euro zone crisis, the minutes of its last policy meeting showed on Wednesday.
Mining shares led the charge, rising 1.5 percent as the prospect of fresh injections of cheap cash to revive the economy would boost demand for metals.
They lifted Britain's FTSE 100 index, which was up 21.69 points, or 0.4 percent, at 5,608.38 at 12:55 SA time, in thin volume of 26 percent of the index's full-day average.
“Given that the market's rallied a few hundred points from the lows, investors are positioning quite cautiously. That's why we're not seeing big volumes today, and I expect them to start picking up tomorrow or Friday,” said Manoj Ladwa, head of trading TJ Markets.
“If (Fed chairman Ben Bernanke) doesn't announce anything the market could pull back quite sharply. If he does announce Operation Twist Part 2 or even another round of quantitative easing I think it will be well-received because it's him being proactive and addressing issues before they arise.”
Ladwa added more global quantitative easing could send the market rallying towards 6,000, while the index could fall back towards 5,000 if central banks fail to live up to investors' expectations.
The blue-chip index had risen 95.22 points in the previous session and was up around 360 points from a six-month low hit in late May, when poor US jobs data hit equities and started speculation that more quantitative easing (QE) would be forthcoming.
Traders said buoyant financial markets, especially in the United States, where the Standard & Poor's 500 was just 65 points short of a three-year high of 1,421 hit in early April, could result in the Fed holding fire.
“The Fed's decision is bound to disappoint the market because it makes no sense to inject liquidity in this market,” a London-based derivative trader said.
“And hyper-inflation risks are more than concrete in case of new QE, so my advice is to sell the market ahead of the Fed (announcement).”
ITV SWITCHED ON
ITV rose 3 percent, propelled by speculation the commercial broadcaster could be a bid target for Germany's ProSiebenSat.1, according to the Daily Telegraph market report, with any offer seen pitched at between 130 pence and 150 pence a share. The Financial Times' market report said the bid gossip focused on private equity interest.
Software company Sage Group was also among the top risers, adding 3.9 percent as it entered the fast growing Brazilian market through the acquisition of a 75 percent stake in Folhamatic Group, leading brokers to up their expectations for the stock.
Ex-dividend factors knocked 2.27 points off the FTSE 100 index on Wednesday, with Experian, Land Securities , Severn Trent, and United Utilities all trading without their payout attractions, which included a special dividend for Severn Trent.
WM Morrison was also a notable faller, down 1.4 percent as Shore Capital downgraded its rating for the supermarket group to “sell” from “hold”, pointing out that the firm's trading performance has been causing it growing concerns. - Reuters