Banks lead FTSE to a rebound in spite of jitters over the Eurozone

BRITAIN’S top share index rebounded from a three-session slide yesterday as a rise in banking stocks following a positive broker comment and gains in mining shares boosted the index.

The FTSE 100 index closed up 39.19 points, or 0.7 per cent at 5,634.74, reversing a downward spiral when the index surrendered almost all its remaining 2012 gains after it fell 2.2 per cent on Tuesday, its second biggest percentage fall of the year.

The index dipped briefly below the 200-day moving average around the 5,695 level, which is also near 2012 lows, before bouncing back.

“This appears to be a normal trading bounce following a selloff mainly driven by bargain hunting and short covering. Current downtrends remain intact,” a London-based trader said.

Investor unease is reflected in the FTSE 100 Volatility index, which has leapt more than 50 per cent since 3 April on concerns about global growth and Europe’s debt crisis.

“People are looking out for short term gains for the moment,” said Dean Stevens a trader at Galvan.

Banking stocks, one of the largest components of the FTSE index, rebounded yesterday after HSBC raised its call on the sector to “overweight” for the first time in four years, citing valuation grounds.

This pushed up the FTSE, with Barclays, Lloyds, and RBS all making gains of more than two per cent.

Hargreaves Lansdown was the top rise, gaining 3.8 per cent.

The cyclical mining sector also propped up the index, with silver producer Fresnillo leading gains by reversing a five-week slide with a 3.4 per cent jump, outstripping near two per cent gains from Vedanta Resources and Kazakhmys.

Investors came rushing back in on the dips with the sector up 1.7 per cent having shed 10.3 per cent over the past month as worries over China growth have crimped the outlook for sector earnings.

“I am quite sceptical on China in the long term. There’s clearly been an asset bubble but in the short term its unlikely that Chinese growth will greatly disappoint and they’ve got scope for fiscal stimulus,” said Ewen Stewart, UK strategist at Investec.

Miners drew some support from better than expected first-quarter numbers overnight from Alcoa, which kicked off the US earnings season.

BT Group shed 2.5 per cent as JPMorgan cut its rating on the telecoms firm to “neutral” from “overweight” on valuation grounds, while also citing concerns over its revenue and dividend outlook.

“We remain positive on a longer-term view, [but] regulatory drags in Openreach from April may contribute to 12/13 revenue guidance being reduced at the FY results on 10 May, while hopes for a dividend ‘hike’ may be disappointed,” JPMorgan said.

Drugmaker Shire was 2.4 per cent lower partly because of its defensive attributes, but also with traders citing fading bid hopes after Germany’s Bayer, one of a number of possible suitors, failed to mention acquisition moves in its recent update.

European stocks also ended higher, halting a week-long slide as recently battered banks rallied, although the rebound was seen as technical and could be short-lived, with investors bracing for Italy’s bond auction expected today.