Banks and miners propel the FTSE after July’s record gain

BANKS and commodity stocks powered a sharp rise in Britain’s top share index yesterday, as HSBC’s results beat forecasts and metal and energy prices rose. The FTSE 100 closed up 139.09 points, or 2.7 per cent, at 5,397.11. For the month of July the index rose 6.9 per cent, its biggest monthly increase for exactly a year.

Banks were the star performers on Monday, with HSBC up 5.3 per cent after it said half-year profit more than doubled from a year ago as bad debts fell sharply, and that it remained bullish on the outlook for emerging markets.

“As long as financial institutions have shown that they are less significantly hit by bad loans, there can be some cautious optimism,” said Tim Whitehead, investment manager at stockbroker Redmayne-Bentley.

Royal Bank of Scotland, which reports its first-half results on Friday, rose 4.3 per cent.

However volumes were relatively thin with many traders off for summer breaks. Trading was around 80 per cent of the average volume of the last 90 trading days and analysts were sceptical about whether the rally could continue.

“I think this is a market which is trading thin so it's good news for now, but I'd always caution against extrapolating recent trends too far into the future,” said Peter Dixon, economist at Commerzbank.

Technical levels will also provide hurdles to much further FTSE strength.

“The FTSE has struggled anywhere near the 5,400 level over the last couple of months but the key resistance is at 5,435, a 61.8 per cent retracement of this year’s 5,834 - 4,790 down move,” said Michael Hewson, market analyst at CMC Markets.

Miners were in demand, recovering after declines on Friday, against a backdrop of firmer metals prices. Xstrata added 5.9 per cent, and Antofagasta, gained 5 per cent.

Randgold Resources, however, topped a slim list of blue-chip fallers, shedding 1.7 per cent, after the West African-focused gold miner cut 2010 production guidance for its flagship Loulo mine.

Energy stocks also bounced back from weakness in the previous session as crude prices rose, with Royal Dutch Shell up 3.8 per cent and BG Group 2.8 per cent firmer.

BP added 1.8 per cent. The oil firm could start plugging its broken deepsea oil well in the Gulf of Mexico on Monday night, more than three months after its rupture led to the worst offshore oil spill in US history.

Among individual movers, Intertek Group advanced 6.2 per cent, after the testing equipment firm raised its full-year guidance.

Growth in Britain’s manufacturing sector eased slightly in July, with Eurozone wobbles weighing on exports, but the figure still beat forecasts and employment and new orders overall remained buoyant. Positive momentum was sustained in afternoon trade after data showed the US manufacturing sector grew in July for the 12th straight month.