Bullish US data lifts FTSE to a five-year peak

LONDON REPORT

BRITISH equities rose to five-year highs yesterday, with a rally on Wall Street eclipsing concerns about political uncertainty in the Eurozone and helping the FTSE 100 close above the 6,500 points mark.

The UK blue chip index closed up 20.05 points or 0.3 per cent at 6,503.63, extending gains after the American S&P 500 hit its strongest intraday levels since late 2007, continuing to draw comfort from Friday’s positive US jobs data.

“We are just grinding higher on the back of stronger US data that we keep seeing,” said Adam Seagrave, equity trader at Saxon Bank.

“For the right shares, people are still very happy to take stock on at these levels, but at some point we will probably have to pause for breath,” he added.

Both the close and the intraday peak of 6,505.30 were the FTSE’s highest for more than five years, but technical charts showed scope for further gains.

The index has powered through a string of resistance levels as it rallied some 15 per cent in four months.

“We remain positive with a target of 6,535 and an invalidation level at 6,412 points,” analysts at chart specialists Day-By-Day said in a note.

Underscoring the market’s upward momentum, any dips – including the pause seen in the first half of yesterday’s trading session – have prompted strong buying interest.

“Much of the dip buying we have seen has been led by long-term investors. They still understand in the search for yield the equity market offers more upside than the negative real rate of return from the fixed-income market,” said a trading director at Guardian Stockbrokers.

Given the strong focus on yield, shares in Antofagasta were one of the top gainers, up 2.4 per cent after analysts at Societe Generale said the miner could unveil a special dividend when it reports results today.

Dividends are coming out as an increasingly popular investment theme, offering an alternative to ultra-low government bond yields.

In UK, the chances of higher payouts have been increased by weakness in sterling, which increases the impact of exporters’ foreign currency earnings.

Banks were one of the few UK segments to sit out the broader market gains yesterday, hit by Eurozone jitters. The sector, the most directly exposed to swings in the euro area crisis through their sovereign debt holdings, fell 0.4 per cent after Fitch cut Italy’s credit rating, putting problems in the region back into the investor spotlight.

Barclays was one of the heaviest fallers in the FTSE, closing down 2.23 per cent at 311.5p.