British Airways and Iberia merger sends FTSE soaring

BRITAIN&rsquo;S FTSE 100 hit its highest close in three weeks yesterday as British Airways soared with investors cheered as a merger with Iberia looked imminent, while gains were also powered by strength in banks.<br /><br />But the rise was limited by falls in commodity prices hitting miners and energy stocks, which together constitute a third of the index.<br /><br />The index closed up 9.75 points or 0.2 per cent at 5,276.50, its highest close since October 19, and touched a peak since September 2008 after ending 0.7 per cent higher on Wednesday.<br /><br />British Airways rose 7.5 per cent after it and Iberia confirmed their boards were holding separate board meetings to consider a merger to create the world&rsquo;s third largest airline by revenue. <br /><br />BT Group gained 3.7 per cent after it increased its outlook for the full year after stringent cost cuts helped the former telecoms monopoly deliver strong core earnings. Free cashflow targets were lifted to at least &pound;1.6bn.<br /><br />Other telecoms stocks were also stronger, buoyed by improved sentiment on the sector after the BT Group results. Heavyweight Vodafone added 1.3 per cent and Cable &amp; Wireless rose 1.4 per cent.<br /><br />The index is up 19 per cent this year and has soared 52.5 per cent since touching a six-year trough in March.<br /><br />&ldquo;Coming up to year end, a lot of people don't want to be seen holding too much cash and a lot of it is finding its way into the equity market,&rdquo; Exton at Tilney said.<br /><br />Inmarsat added 6.7 per cent, benefiting as the satellite communications firm entered the MSCI world index, meaning that some index tracking funds automatically take positions in the stock. <br /><br />GlaxoSmithKline gained 1 per cent as Barclays Capital initiated coverage with an &rdquo;qual weight&rdquo; rating, while UBS hiked its target price for the drugmaker.<br /><br />Banks were generally higher with investors taking positions in relatively risk sensitive stocks. Standard Chartered, HSBC, Lloyds Banking Group and Barclays added 0.3-2 percent.<br /><br />But state-supported Royal Bank of Scotland fell 3 per cent extending losses for the third consecutive day.<br /><br />Energy stocks dipped as the crude oil price fell to around $77 per barrel, having been up above $80 on Wednesday.<br /><br />BG Group, BP and Royal Dutch Shell dropped 0.8 to 1 per cent. Similarly miners were dragged lower by softer metal prices with Fresnillo, BHP Billiton and Rio Tinto dropping.