London Report: Investors take punt on banks to drive FTSE up

THE UK’S blue chip share index rose to a one-week high yesterday, with gains in financial stocks pushing the FTSE 100 towards major technical resistance levels.

Lloyds rallied three per cent, as investors bought the stock on expectations that the bank will start paying dividends this year and that it will benefit from a recovering British economy and housing market.

Lloyds is expected to announce a payout to shareholders on its 2013 results, with StarMine consensus pointing to a dividend yield of 0.4 per cent this year, rising to 3.1 per cent next year.

“Lloyds is a domestic story. If the property market is going to do well, then the leverage you get out of Lloyds is great, plus they are going to pay a dividend this year, so the income funds will be buying them,” said Zeg Choudhry at Northland Capital.

Bolstering the British economic recovery story, car sales rose to their highest level since 2007 last year, data showed yesterday, while British businesses reported strong growth and rising confidence.

Analysts at Bernstein Research highlighted Lloyds as being the mostly likely to directly benefit from a consumer recovery, while noting that RBS looks promising on valuation and that HSBC is likely to increase its risk appetite in Britain. RBS shares rose 1.8 per cent, while HSBC – the biggest constituent in the FTSE 100 – added 2.4 per cent. Together financials contributed 23.4 points to the FTSE 100.

The index closed up 24.72 points, or 0.4 per cent, at 6,755.45 points, approaching its December high of 6,768.44 points in what technical analysts said was generally an upbeat picture. Also among the top gainers, IAG rose 3.4 per cent in a late-session rally after posting a 3.6 per cent surge in December traffic, helped by a strong performance at British Airways.

Other sectors exposed to the economic cycle such as consumer cyclicals and energy also held up well as investors made fresh bets for 2014.

“If you believe that there is some cyclical upturn - and there does seem to be signs of that - then ... I think the danger is that you remain too defensive. You've got to start to think a bit more cyclical,” said Paul Sedgwick at Frank Investments. Water company Severn Trent dropped 2.2 per cent after JP Morgan downgraded the stock, while supermarket chain Morrison fell 1.1 per cent after Barclays said there was a risk it may step back from a pledge to deliver positive like-for-like sales growth in the fourth quarter.