London Report: FTSE hits a five month high as banks recover

BRITAIN’S main share index rose yesterday to a five-month high, boosted by strong earnings reports and a rebound in financial and basic material stocks.

The blue-chip FTSE 100 index closed up 0.6 per cent, or 38.70 points, at 6,713.18 points, its first close above 6,700 since May.

A daily close above 6,700 indicated that the upward trend was very strong, GFT analyst Fawad Razaqzada said, adding the level could turn into support for future gains.

“We’ve broken through the bearish trendline around 6,600 in recent days, and the fact that we’re holding at these highs is very bullish.”

Leading gainers was Shire, which surged 9.3 per cent in afternoon trade after releasing results at midday that raised its full-year forecast on the back of lower than expected costs and accelerating sales. Advertiser WPP also gained after results.

Financials, which include banks, asset managers and insurers, accounted for a third of the index’s gains.

Aberdeen Asset Management led the way in the sector with a 5.8 per cent gain after it entered talks to buy Scottish Widows Investment Partnership from Lloyds in a deal which could turn Aberdeen into the largest listed fund manager in Europe. Traders described it as a good deal for both sides.

“The market doesn’t think it is a bad thing for [Aberdeen] to be getting more under their belt and on the contrary, they’re buying some pretty safe stuff,” said IG’s Will Hedden.

Lloyds extended gains to trade up 2.8 per cent at its highest level since 2008. Hedden said the deal helped the bank refocus on its core business.

Eurozone-exposed banks Lloyds and Royal Bank of Scotland had already been trading higher before the news. Their shares bounced after being among the top fallers in the previous session, when the European Central Bank (ECB) outlined tougher-than-expected stress tests for regional lenders. The ECB said it would review the quality of a broad range of assets held by top European banks next year, which could mean lenders have to raise fresh capital.

Banks rose 0.8 per cent, although they failed to fully regain ground lost on Wednesday.

Mining stocks were up 0.7 per cent, buoyed by a rise in the flash Markit/HSBC purchasing managers’ index for China to a seven-month high in October. It now stands at 50.9, up from 50.2 in September.