BRITAIN’S top share index closed higher yesterday, led by banks after bullish earnings from their US peers and with hopes building that the recent coordinated action by central banks and the IMF would be enough to avoid an economic crisis.
The FTSE 100 index rose 38.78 points, or 0.7 per cent, to 5,741.15, after breaking resistance at 5,700.
The index closed above that level on Wednesday, for the first time since the end of October, and extended gains from its recent low in mid-December to around seven per cent.
Volumes were heavier than in recent months – 153 per cent of their 90-day average – evidence investors are growing in confidence.
“More and more people are realising what a bazooka that [the recent action by central banks and the IMF] is,” said Steven Bell, director at hedge fund GLC.
Banks, which fell around 30 per cent in 2011, gained yesterday, with Barclays up 10 per cent, as investors feasted on bullish results from US firms Goldman Sachs, Bank of America and Morgan Stanley.
“After a soggy start to the earnings... it’s now looking pretty good. Financials have leapt today and we think that overall earnings will be quite a big beat,” Bell said.
The sector, which is acutely exposed to Europe’s debt crisis, also got a lift after Spain passed a key test in the bond market, selling more longer-term debt than had been expected.
Key to sentiment though remained Wednesday’s news regarding the International Monetary Fund's involvement in helping countries deal with fallout from the crisis.
And investors received a further boost, with traders citing media reports that Klaus Regling, the head of the euro-area bailout facility, is confident that the fund’s reach can be increased as much as fourfold, despite its recent downgrade by S&P.
Other beaten down financials benefited from the feel good factor with insurers such as Aviva up 5.2 per cent, and investment firm Schroders 5.3 per cent higher.
Airlines, which have come under pressure as the outlook for the global economy has deteriorated in recent months, rallied too, with traders citing HSBC’s upgrade of German carrier Lufthansa as having a positive readacross for the sector.
British Airways owner IAG climbed 6.5 per cent higher.
It wasn’t such good news for the retailers as Sainsbury underperformed after Goldman Sachs downgraded its rating for the grocer to “sell” and cut its earnings forecasts across the sector by up to 21 per cent.
The broker also downgraded its rating for Tesco to “neutral” from “buy”, and repeated its “sell” rating on Wm Morrison.
Tesco, however, rose 1.9 per cent on news US billionaire Warren Buffett’s investment vehicle Berkshire Hathaway had increased its holding in the company to more than five per cent.
In heavy trade – 380 per cent of its 90-day average – British publisher Pearson fell 1.3 per cent with traders citing valuation concerns after it bumped up its 2011 earnings guidance for the third time in three months.
And with appetite for risk improving, defensive stocks featured prominently on the FTSE 100 fallers list.
Tobacco stocks were weak, led by BAT down 2.2 per cent, as Nomura downgraded its stance on the sector to “neutral” from “bullish”.