Banks lift FTSE after Citibank’s strong results

BRITAIN’S blue-chip stock index recorded a six-week closing high yesterday, with banks leading the advance after strong results from US bank Citigroup improved investors’ outlook on the financial sector.

The Citigroup results added to the positive mood established following GDP data from China, where economic growth eased to 7.5 per cent in the second quarter, in line with forecasts. This was a relief for investors who had expected even weaker readings after a surprise fall in exports in June.

“Chinese growth figures, which were no worse than expected, set the scene for the market in early trading, while Citigroup results further improved sentiment,” Keith Bowman, equity analyst at Hargreaves Lansdown, said.

“There is still some room for the market to move higher, but investors will remain cautious as there are still question marks about the Federal Reserve’s likely monetary policy.”

UK banks, top gainers on the FTSE 100, rose 1.4 per cent after Citigroup reported a 41 per cent rise in quarterly profit.

The FTSE 100 index ended 41.17 points, or 0.6 per cent, firmer at 6,586.11, the highest close since late May. The index has advanced about 10 per cent since a June low on expectations that the Fed would not scale down its stimulus anytime soon.

But analysts said recent strong US data suggested that chances of the Fed trimming its liquidity operations were increasing and investors should trade cautiously.

Daniel McCormack, strategist with Macquarie, said investors could look at consumer staples for better returns as the UK economy was recovering, the housing market was picking up and real incomes were growing again.

Bowman of Hargreaves Lansdown liked the airlines sector saying that it was a global industry and there was less chance of getting country-specific difficulties.

Among other gainers, miners rose on hopes metals demand in China would remain supported. The UK mining index rose 0.2 per cent, while BHP Billiton and Anglo American were up 0.4 per cent and 0.5 per cent respectively.

On the downside, software company Sage Group fell nearly three per cent, with traders citing some bearish comments from Morgan Stanley on the company in a sector note as a reason for the decline.