FTSE reverses losses on Fed stimulus hopes

THE UK’S top share index recovered from a four-week low yesterday, bouncing up from technical support levels and cheered by expectations that Federal Reserve stimulus may remain in place for a while longer.

With little fresh data, the focus remained on news that the US manufacturing sector shrank unexpectedly last month.

After an initial sell-off on Monday on concern over future demand from the world’s biggest economy, sentiment towards equities shifted overnight, with some taking the view that the economic weakness could discourage the Fed from ending quantitative easing early.

The FTSE 100 index of British blue-chip companies, which derive around a quarter of their sales from the United States, closed up 33.46 points, or around 0.5 per cent, at 6,558.58.

With the focus on US monetary policy, markets were expected to remain volatile ahead of a series of speeches from Fed officials in coming days and key jobs data on Friday.

“The economic data we’ve had support that QE will continue... With Wall Street holding its nerve... and with (US) futures looking OK, there isn’t really any selling,” said Zeg Choudhry, head of equity trading at Northland Capital Partners.

The FTSE 100 had fallen more than five per cent in the previous 10 sessions, retreating from a 13-year peak, before finding support at the 40-day moving average on Monday, when it closed down, but above a session low.

“It’s rallied back up pretty much every sell-off,” said Jordan Hiscott, trader at Gekko Global Markets.

“The volatility will continue, while you’ve got markets in a two-way battle, with QE pushing the market up and with bears betting the market will fall 15-20 per cent as soon as the QE stops.”

The sell-off had pushed its seven day relative strength index (RSI) out of the overbought territory above 70 and down to the upper boundary of the oversold area below 30.

Among individual stocks, GKN, one of the cheapest companies in the FTSE 100 on a share-price-to-earnings basis, was the top riser, up 5.1 per cent after UBS said the company was now “better positioned strategically and operationally”.

Wolseley, one of the most expensive shares in the index at 18.6 times current earnings, fell 6.3 per cent after posting below-forecast third-quarter results. “There is a lot of good news already in the share price; take profit,” said Panmure Gordon analyst Andy Brown.

Banking stocks also fared well yesterday. HSBC led the pack, closing up 1.9 per cent, in spite of news that the bank is being sued by the state of New York over US home loans.