A rally by recently beaten-down banks and commodity issues hauled Britain’s top share index higher yesterday, although many traders doubted whether the gains could hold.
“Dead cats are proving pretty elastic ... It is most likely that any hedge funds shorting stocks over the [banks] stress tests are back in and buying to cover their shorts. But like a hug that does not last very long, this rally lacks conviction,” said Louise Cooper, markets analyst at BGC Partners.
At the close, the FTSE 100 index was 37.18 points or 0.7 per cent higher at 5,789.99, recovering almost half of the sharp falls recorded in the previous session.
The UK blue chip index had shed five per cent over the previous eight trading days as worries over the potential for debt default among some Eurozone countries and threats to the US’s top credit rating weighed on sentiment.
Miners bounced, tracking firmer metal and oil prices, and helped by positive comment from BofA Merrill Lynch, which argued that gold equity plays looked particularly cheap given the sharp rise in the precious metal.
Johnson Matthey, the world’s largest supplier of catalytic converters, was a top blue chip gainer, up four per cent as it said its first-half performance would likely be significantly improved.
Banks rallied, with the sector having hit two-year lows on Monday as analysts questioned the credibility of last week’s European bank stress tests, and with ongoing concerns over lenders’ exposure to the region's debt problems.
Lloyds Banking Group was the top performer, up 4.3 per cent, having been among the top fallers on Monday. RBS added 0.4 per cent.
On the downside, British Land was the top blue chip faller, down 1.1 per cent as Goldman Sachs cut its rating.