FTSE shares rebound but debt worries still dog bank stocks

STRENGTH in oversold commodity issues fuelled a modest rally by Britain’s top share index yesterday, while sovereign debt worries continued to dog banking stocks.

At the close, the FTSE 100 index was up 26.79 points, or 0.5 per cent at 5,896.87, having dropped 2 per cent on Monday to hit its lowest level since March 23 after S&P cut its credit outlook for the United States to negative.

“A bounce back following Monday’s plunge was to be expected, but the moderate nature of it indicates that investors are unsure there will be any really solid advance in the near term,” said Mic Mills, head of electronic dealing at ETX Capital.

Specialty mining and metals was the top performing sector as UK blue chips saw some of Monday’s flight from risk reversed.

Precious metals group Fresnillo was the best sector performer, adding 3 per cent as the price of gold hit record highs near $1,500 an ounce for a second successive day.

Integrated oils also recovered after Monday’s falls as crude prices CLc1 ticked higher, with BG Group up 0.8 per cent.

Banks, however, were the worst performers, led by part-nationalised lenders Royal Bank of Scotland and Lloyds Banking Group, down 0.6 per cent and 0.5 per cent, respectively, as global sovereign debt concerns kept them on the back foot.

Barclays slipped 0.1 per cent ahead of first-quarter results due next week.

The sector got no help from forecast-beating first-quarter results from US peer Goldman Sachs, as the Wall Street bank warned there were fewer opportunities to make money in the current environment.

US blue chips were flat by London’s close, as early strength from earnings news from Goldman and healthcare conglomerate Johnson & Johnson dissipated.

Burberry was the top blue chip performer, up 6 per cent after the luxury products group said fourth-quarter sales beat forecasts and would push full-year profit to the top end of expectations.

French peer LVMH also boosted sentiment for the sector as its first-quarter sales beat expectations.

On the high street, Marks & Spencer added 1.5 per cent as Citigroup raised its recommendation to “buy” from “hold” saying it sees the retailer as a “major beneficiary of the improving outlook for the older UK consumer”.

But the world’s third-largest retailer Tesco fell 1.6 per cent after its full-year results -- the first to be delivered by new CEO Philip Clarke -- fell short of expectations in a tough home market.

“Overall, we believe the new CEO has made a decent start. However, the group has plenty to do to prove to the market that it can achieve its targets, especially in the core UK business,” said Killik & Co in a note.

Other retailers suffered with the slightly disappointing news from Tesco, with blue chip Next down 0.5 per cent, while second liners Dixons Retail and Home Retail Group shed 3.3 and 3.2 per cent, respectively.

Home Retail reports full-year results on Thursday.

Meanwhile upbeat corporate earnings also helped European shares to rebound yesterday from hefty falls a day earlier. Highlighting the underlying strength in the economy, the Euro zone’s composite PMI, a broader measure of the private sector often used as a guide to growth, beat forecasts in April, in a sign that economic fundamentals could continue to support corporate growth and equity gains in the medium-term.