FTSE 100 climbs on hopes EU summit will tackle crisis

BRITAIN’S leading share index last night reached its highest closing level for two-and-half months.

Defensive stocks performed well as investors awaited the outcome of a European Union summit, which opened last night, to resolve the two-year-old sovereign debt crisis.

Investors also rewarded companies reporting strong figures in a patchy quarterly results season, with BG Group up 1.2 per cent, extending its 3.8 per cent rise in the previous session, and BP up 0.8 per cent.

The FTSE 100 closed up 27.70 points, or 0.5 per cent, at 5,553.24 in a volatile session, swinging from a low of 5,498.51 to a high of 5,576.63.

Volumes were thin, at just 75 per cent of the average over the last 90 days, indicating investors’ caution ahead of the summit.

The financial markets have been buoyed by hopes that a decisive plan, including a programme to recapitalise Eurozone banks, would be unveiled after the summit, with the UK index gaining about 12 per cent in the last two weeks.

However, the region’s policymakers have not yet agreed on the scale of Greek debt writedowns and how much the rescue fund needs to be leveraged to prevent other struggling countries, such as Italy and Spain, from being sucked into the crisis.

“We are struggling even to get to what percent of haircut we are going to see in Greece. The (rescue fund) has hardly been boosted. Bank recapitalisation is implausibly a small amount,” said Philip Lawlor, strategist at investment management company Smith & Williamson.

“This is just over-promising and under-delivering.”

Banks, which have been hurt by the ongoing Eurozone debt crisis, slipped 0.3 per cent, though defensive stocks were in demand.

Among them was British American Tobacco, which gained 1.5 per cent after the world’s second-largest cigarette maker reported sales up seven per cent in the first nine months of the year. Peer Imperial Tobacco, which will report its earnings next Tuesday, rose 3.2 per cent.

Lawlor suggested investors stick with high-quality, cashflow generating stocks.

Among FTSE 100 companies, Man Group offers the highest dividend yield at 8.8 per cent, followed by RSA Insurance at 8.1 per cent and Aviva at 7.6 per cent, data from Thomson Reuters StarMine shows.

However, companies that offer the highest 12-month forward dividend cover – a measure of their ability to pay its expected dividend out of estimated earnings and cash flow – were Vedanta Resources, Tullow Oil and Barclays, according to data from StarMine.

Other defensive stocks to gain yesterday were drugmakers and mobile phone operator Vodafone, which put on 1.5 per cent.

Drugmaker Shire advanced 2.7 per cent, as Societe Generale upgraded the stock to “buy” from “hold” on the basis of upcoming product launches and its defensive growth abilities.

Rival GlaxoSmithKline put on 0.8 per cent as it raised its interim dividend and said it was increasing its plans for share buybacks.

“We are now five months into the earnings downgrade cycle. We suspect earnings still have further to fall, and believe 2012 (consensus) earnings are now most at risk,” UBS said in a note, adding that they expected UK company earnings to grow by an average of three per cent next year.