FTSE bounces four per cent as hope for euro plan grows

BRITAIN’S top share index gained strongly yesterday, posting its biggest one-day percentage gain for 16 months, boosted by a rally from commodity stocks and advances by banks on increased hopes that European leaders will take decisive action to alleviate the region's debt crisis encouraged investors.

Banking stocks, among the most sensitive to the twists in the Eurozone debt saga, extended Monday’s gains, led by Royal Bank of Scotland and Barclays, up 7.1 per cent and 5.6 per cent respectively.

“There does seem to be a slightly bizarre excuse behind the gains today – rumours that Europe will expand the EFSF. If so, it’s a rally built on hope rather than anything concrete. But to be honest, it is mainly to do with our old friend ‘end-quarter window dressing’, as it's been such a big quarter,” said David Morrison, market strategist at GFT Global.

The FTSE 100 index closed 204.68 points, or four per cent higher at 5,294.05, its biggest one-day percentage gain since May 2010.

As a turbulent month and quarter draw to a close, the blue chip index was currently down about two per cent in September, and had fallen by around 11 per cent since the end of June.

“Technically speaking were pretty much still stuck in a range of 5,400 to the topside and 5,050 at the bottom. We are also almost smack on the 38.2 pct Fibonacci retracement level of 5,260-70 from the sell-off in August this year, so there should be a little cheer if we close above that,” GFT’s Morrison added.

Miners were the biggest blue chip gainers, having been the major fallers on Monday, with Antofagasta standing out, up 10.7 per cent, as copper rebounded from a 14-month low hit in the previous session.

The gold price also rallied after recent sharp falls, helped by an easier dollar, with Fresnillo adding 10.3 per cent as Citigroup upgraded it to “hold” on valuation grounds.

Vedanta Resources was the top FTSE 100 gainer, ahead 11.8 per cent. The board of India's state-run Oil and Natural Gas Corp has decided to issue a no-objection certificate for Vedanta's deal to buy a majority stake in oil and gas explorer Cairn India.

The stake seller Cairn Energy gained 5.2 per cent.

Other energy issues also pushed higher as crude rebounded over four per cent higher, with BP and BG Group up 5.2 per cent and 6.7 per cent respectively.

Among individual blue chip risers, engineer Weir Group added 5.8 per cent as Goldman Sachs reiterated its “Conviction Buy list” rating on the stock, which was the worst performer in its capital goods universe last week.

On the second-line, emerging markets doorstep lender International Personal Finance was the top FTSE 250 gainer, up 14.7 per cent after JPMorgan Cazenove upgraded its rating to “neutral” from “underweight” on valuation grounds.

Topps Tiles was the top rise in the FTSE All-Share, adding more than 25 per cent on a better-than-expected update.

“You have to stress the importance of it being the quarter-end on Friday, particularly as the market has rallied into the month-end six out of eight times so far this year, only to be followed by sharp falls straight afterwards, but it’s all linked to short positions and derivatives with very little cash trading,” said one London-based trader.