Financials and miners lift the FTSE to a new high for 2012

BRITAIN’S FTSE 100 closed at its highest level this year yesterday as banks and miners rallied after encouraging economic data out of Europe and the US, although volumes were weak and traders said the market could be nearing its top.

London’s blue chip index closed up 63.16 points, or 1.1 per cent at 5,955.91, but volumes were thin with the FTSE 100 trading 83 per cent of a subdued 90-day average.

Investors’ appetite was given a boost by German ZEW sentiment data which beat expectations by a large margin, and US retail sales posted their largest gain in five months in February.

The data fuelled Wall Street gains, where the Dow Jones industrial average is trading at a near four-year high.

Orrin Sharp-Pierson, equity strategist at BNP Paribas, said equities are beginning to look expensive despite the recent rebound in global industrial activity.

He said the data likely staves off further earnings downgrades for equities, but at the current level it doesn’t suggest meaningful upgrades either, which is what would be needed to support further re-ratings.

Banking and mining stocks were the main drivers of FTSE 100 gains, as risk appetite improved.

Part state-owned British banks Lloyds and Royal Bank of Scotland rose 2.8 and 1.5 per cent respectively, after they announced a total of 1,900 job cuts as the banks streamline operations to improve profitability following the financial crisis.

Citigroup repeated its “buy” rating on Lloyds. But, highlighting uncertainty surrounding the UK bank and the sector, cut its earnings forecasts for 2012 and 2013 by up to 18 per cent. Citi also kept its “neutral” rating on Royal Bank of Scotland.

The sector has been blighted by concerns over exposure to Europe’s debt crisis. But as concerns over Greece defaulting have dissipated, lessening the chance of a full blown financial crisis, volatiltiy -- a gauge of investor fear -- has fallen.

“(Volatility indexes) are pricing in a slow and steady increase equity markets, without any further shocks. However, given the last five years of turmoil, it would be a surprise if such a Panglossian (optimistic) future existed,” a London-based trader said.

International airlines rose 4.5 per cent as pilots at Spanish airline Iberia, part of International Airlines Group, called off a series of strikes intended to protest against the start-up of a low-cost airline.

Results helped Prudential up 4.8 per cent, after Britain’s biggest insurer met forecasts with a seven per cent increase in its 2011 profit, helped by strong Asia growth.

Peer Standard Life gained 0.4 per cent having posted a better-than-expected 28 per cent increase in 2011 profit and 6.2 per cent increase in dividend.

Shore Capital said despite valuation support and Standard Life’s dividend yield attraction it preferred annuity companies such as Legal & General and Prudential.

Legal & General added 3.4 per cent ahead of results due out today.

Inchcape gained 11 per cent after the multi-national car dealer reported better-than-expected results for 2011, driven by demand for premium vehicles in the Asia-Pacific and emerging markets.