FTSE rises but Eurozone still weighs on some bank stocks

ARALLY by commodity issues on a brighter demand picture pulled Britain’s top share index higher yesterday, though weakness in banks dented some sentiment as investors looked cautiously ahead towards a key meeting today on the Eurozone debt crisis.

French President Nicolas Sarkozy will meet German chancellor Angela Merkel in Paris to discuss further steps to alleviate the crisis, though one mooted remedy, the creation of common euro area bonds, is not on the agenda.

“If there can be an agreement allowing greater fiscal co-ordination the market should take this as a positive. The market needs some clarity for investor confidence,” said Atif Latif, Director of Trading Equities & Derivatives at Guardian Stockbrokers.

The FTSE 100 index closed up 30.55 points, or 0.6 per cent, at 5,350.58, extending its rally into a third straight session since hitting a one-year closing low last Wednesday.

Market movements were calmer than last week’s gyrations, when the UK blue-chip index swung in a range of more than 500 points over five trading sessions. Volumes were also quieter at 73.5 per cent of the 90-day average.

Strength in energy and mining stocks provided the main prop for the blue chip gains, helped by data yesterday showing Japan’s economy shrank much less than expected in the second quarter.

BP led the rally by integrated oils, up 2.9 per cent. BP and GDF Suez, the French utility, have separately put their interests in two gas fields in the North Sea on the block as the sell-off of mature assets in the region gathers pace.

Among the specialty miners boosted by firmer metal prices, Kazakhmys and Lonmin were two of the best performers, up 3.5 per cent and 2.9 per cent. Precious metals miner Fresnillo was also a top FTSE 100 gainer, up 4.1 per cent.

Elsewhere with the blue chip risers, insurer Standard Life took on 2.1 per cent as JP Morgan Cazenove raised its rating to “overweight” following recent results.

And insurance consolidator Resolution firmed 3.1 per cent ahead of its first-half results due today.

US blue chips were 0.8 per cent higher by London’s close, boosted by M&A news in the technology and cable sectors.

Banks, the chief focus of last week’s market turbulence on heightened concerns over the sector’s sovereign debt exposure, beat a retreat after a bounce on Friday when a short-term ban on short-selling of financial stocks in four European countries seemed to help sentiment.

“The ban is heckled by many as a pointless exercise, and the lack of volume today gives ammunition to those who believe its only achievement is to reduce liquidity at a time of rampant volatility,” said Will Hedden, Sales Trader at IG Index.

Barclays was the biggest banking faller, down 2.1 per cent and impacted by press reports saying the Independent Commission on Banking is ready to defy the big banks and impose tougher than expected “ring fencing” of retail and investment banking activities when it presents its report on 12 September.

Accounting software firm Sage Group was the top FTSE 100 faller, down 2.1 per cent as Goldman Sachs downgraded its rating to “sell” from "neutral” as part of a review cutting estimates and target prices across the technology sector.