Commodities and banking stocks lead Santa Claus rally

BRITAIN’S top share index closed sharply higher in thin pre-Christmas trading yesterday, buoyed by commodity stocks on firmer metals and crude prices and a rally in banking equities.

The FTSE 100 index ended up 97.18 points, or 1.9 per cent, at 5,293.99, posting its biggest one-day percentage gain since 1 December, with trading volumes just 74 per cent of the 90-day average daily volume.

The index closed 0.4 per cent lower on Friday at 5,196.81. It lost 1.2 per cent overall in the final full trading week of 2009.

“We’ve had a pretty strong flurry today and you wonder, ‘is this the Santa Claus rally that people have been expecting?’,” said Mike Lenhoff, a strategist at Brewin Dolphin.

The FTSE 100 also got support from US stocks, which rose after a healthcare overhaul passed a crucial test in the US Senate, and as aluminium producer Alcoa announced an overseas deal and a brokerage upgraded its stock.

Energy stocks added the most points to the FTSE 100 index, helped by a rise in crude CLc1.

Cairn Energy topped the FTSE 100 leader board, adding 4.7 per cent, helped by news the oil and gas explorer has secured a rig to allow it to commence a drilling programme offshore western Greenland.

“Cairn has delivered an early Christmas present to shareholders by moving forward exploration drilling offshore Greenland to 2010 from 2011,” said house broker RBS.

Tullow Oil, meanwhile, gained 2.1 per cent after a newspaper reported one of its senior executives revealed the explorer is likely to scupper Heritage Oil’s proposed £930m sale of its Ugandan assets to energy group ENI.

Royal Dutch Shell, BG Group and BP put on 1.7 to 2.6 per cent.

Miners rose against a backdrop of stronger metals prices, with Anglo American, Lonmin, Rio Tinto and Vedanta Resources putting on 2.1 to 2.5 per cent.

Banks were also in demand, rebounding after weakness on Friday, with Barclays, Lloyds Banking Group, HSBC and Standard Chartered adding between 1.1 and 3.3 per cent.

It was a similar story for the life insurers, which fell the previous session. Prudential, Old Mutual and Standard Life put on 1.1 to 4.5 per cent.

Among individual stocks, Aggreko was among a handful of FTSE 100 fallers, off 1.4 per cent, as the temporary power provider debuted on the blue chip index, with the stock retreating after hitting an all-time high on Friday in response to a bullish trading update.

On the economic news front, Britain faces a long road to recovery and growth will be modest in 2010, but that will not prevent the Bank of England from raising interest rates early next year, according to the Confederation of British Industry’s latest quarterly economic forecast.

The UK blue chip index is up 53 per cent from a six-year low in March.