FTSE 100 bounces back after a strong performance from the financial sector

Britain’s top shares rebounded yesterday after falls in the past two sessions, boosted by oils and banks, with better-than-expected results from Citigroup and hopes of more US economic stimulus improving sentiment.

The FTSE 100 index ended 39.15 points, or 0.7 per cent, higher at 5,742.52 after falling last Thursday and Friday. The index is up six per cent so far this year.

Energy shares featured among the top gainers, tracking a jump of 1.5 per cent in crude prices on strikes at French refineries. Royal Dutch Shell, BG Group and Tullow Oil added 0.7 to 2.3 per cent. Risky assets such as equities were also helped by economic numbers. Data showed US industrial production unexpectedly fell in September, while capacity utilisation eased slightly.

“US industrial production report may have reaffirmed hopes that we will receive some additional measures by central banks going forward and that might have pushed the market further,” said Keith Bowman, equity analyst at Hargreaves Lansdown.

“We saw above-expectation results from Citigroup, which also added to sentiment. But going forward, we are likely to see the same level of volatility that we have seen, with a significant level of uncertainty still likely in the coming months.”

Citigroup reported a stronger-than-expected quarterly profit as credit losses slowed.

Financial stocks were among the top gainers, with Standard Chartered, HSBC, Barclays and Lloyds rose 1.1 to 2.9 per cent.

“Investors have understood that the worst case scenario is no longer the most likely,” Societe Generale said in a note, referring to the risk of recession in the United States and deflation in Europe having been all but ruled out.

“Blue chip companies are flourishing and earnings outlook remains positive. All of these factors should give heart to investors and incite them to move progressively back towards equities.”

But miners extended Friday’s falls, with BHP Billiton and Rio Tinto falling 0.6 and 1.5 per cent respectively after ditching plans to form the world’s biggest iron-ore joint venture.

“The announcement that Rio Tinto and BHP Billiton won’t be proceeding with their joint venture, combined with broker downgrades for Antofagasta, Vedanta and Xstrata, has unsurprisingly left the mining sector struggling," said Anthony Grech, head of research at IG Index.

Anglo American, Antofagasta, Xstrata and ENRC fell 0.5 to 1.5 per cent.

Retailers were weak as investors awaited the British government’s Comprehensive Spending Review on Wednesday, which is expected to involve a swathe of cuts to the public sector that could hit consumer spending hard, traders said.

Tesco was off 0.4 per cent, while Home Retail, the owner of Argos which reports results on Wednesday, was down 0.5 per cent.