Britain's top share index rose on Thursday, on track for its third straight day of gains, as investors took heart from supportive words from European leaders for debt-laden Greece.
Banks found favour, helped by a note from Nomura in which the broker retained its bullish stance on the sector following the Independent Commission on Banking's release of proposals for reforming the UK banking sector on Monday.
HSBC and Barclays , which Nomura upgraded to “buy”, rose 1.8 percent and 2.2 percent respectively, while Lloyds Banking Group managed a 3 percent gain, in spite of a downgrade to “neutral” by the same broker.
The market's advance followed comments from French President Nicolas Sarkozy and German Chancellor Angela Merkel on Wednesday that they were determined to keep Greece in the euro zone, as they urged Greek leaders to implement the terms of a bailout plan.
The UK benchmark index was up 86.01 points, or 1.7 percent, at 5,313.03 by 10:51 SA time, having climbed 1 percent in the previous session.
Analysts remained dubious that the index will sustain this upward momentum, deeming comments which emerged from the conference call as rhetoric as opposed to anything material to alleviate the euro zone debt crisis.
“We have been here before. We've had these relief rallies on the back of some words of comfort coming out of the euro zone. I'm not saying it will today but up until now it's tended to be short-lived,” Richard Hunter, head of equities at Hargreaves Lansdown, said.
“Quite apart from the announcement of what was in that conference call, nothing's changed since yesterday, as far as I can see, in terms of a roadmap as to how the European debt situation might be resolved.”
Credit markets appeared to agree in early trade as the cost of insuring Greek debt against default rose further. Investors now need to stump up 6 million euros upfront to insure 10 million euros of debt.
Enis Mehmet, analyst at Autochartist, said a strong bias to the upside is mounting for the FTSE 100 as traders increase demand for risk, and the index could take out the last major swing top at 5,369.80 from Sept. 8.
But despite the recent strength, the action on the index is taking place inside of a huge trading range, leaving it vulnerable to sizable corrections as it approaches the top end of the range, Mehmet added.
Goldman Sachs published a note on Thursday looking at the impact on equities of a further round of quantitative easing in the UK, with banks standing to benefit “at the margin”.
There is a growing chance the Bank of England will restart its bond buying programme as a one-in-three chance of another recession has convinced more forecasters that the bank will act to cut those odds, a Reuters poll published on Wednesday found.
Kingfisher grabbed the top spot on the blue-chip leader board, up 5.1 percent, after the home improvements retailer beat first-half earnings forecasts, prompting Seymour Pierce to lift its rating on the stock to “buy”.
Sector peers, which received a fillip on Wednesday when Next raised its profit guidance, were lifted by the news, in spite of data showing consumers continued to rein in spending at a time of growing economic uncertainty.
Blue-chips Next and Marks & Spencer firmed 2.3 percent and 1.8 percent respectively, while Debenhams climbed 3.7 percent.
British retail sales fell slightly less than expected in August, but the underlying trend remained flat, the Office for National Statistics said.
An upgrade from UBS to “buy” helped send Associated British Foods 3.7 percent higher, while British American Tobacco firmed 1 percent after Credit Suisse lifted its rating on the stock to “outperform”. - Reuters