London Report: Housing pickup sparks rise in blue chip stocks

F RESH signs of a recovery in the UK housing sector helped nudge Britain’s benchmark share index higher yesterday, with several traders expecting more minor gains over the coming month.

The blue-chip FTSE 100 index closed up 0.6 per cent, or 37.60 points, at 6,611.94 points.

A survey by the Royal Institution of Chartered Surveyors (RICS) showing UK house prices were rising at their fastest pace in seven years lifted investor sentiment and boosted banking and construction stocks.

The FTSE has slipped back after racing to a 13-year high of 6,875.62 points in late May although it is still up 12 per cent since the start of 2013.

The index has struggled to hold above the 6,600 point level over the past month, with gains on global equity markets capped by expectations that the US Federal Reserve may start in September to slowly tighten monetary policy measures that have driven much of this year’s stock market rally.

Darren Easton, director of trading at Logic Investments, expected the FTSE 100 to make minor gains over the coming month but was more bullish on the longer-term outlook.

“We should drift higher until early September. We’re still pretty bullish,” said Easton, who bought a position on the FTSE 100 at 6,575 points and sold out at 6,600 points on Tuesday.

Signs of a gradual recovery in the UK economy is giving the market momentum.

Resurgent property prices have also fuelled concerns about rising inflation, but other traders said the improving property market would buoy UK stocks closely linked to the domestic economy since the confidence of many British consumers is tied to their house prices.

Gerard Lane, UK equity strategist at Shore Capital, said it would be good for UK banks, builders and retail stocks.

The FTSE 350 Banking Index rose 0.4 per cent yesterday, as did the FTSE 350 Construction & Materials Index .

“Overall, the data today supports our thesis that those companies with a high degree of exposure to the pick-up in the domestic economy could be expected to benefit the most from the housing market pick-up,” he said.

EGR Broking managing director Kyri Kangellaris was more cautious, however, arguing that the fact that the FTSE 100 had not managed to get back to its May peaks could be a negative sign.

“A failure to get up to the old highs and take them out is not a good sign. For this month, we might be range-bound, and I wouldn’t look to buy up here,” he said. “A lot of stocks have had a good run and are running out of steam a little bit.”

GlaxoSmithKline also rose to add points to the FTSE 100 after winning US regulatory approval for a drug to treat the most common strain of HIV, the virus that causes the Aids disease.