RALLIES by hard-pressed banks, insurers and commodity stocks led a bounce back by Britain's top shares yesterday as support for debt-laden Greece revived investor appetite for riskier assets.
Financial issues were boosted after the International Monetary Fund said it “definitely participate” in a second bailout package for Greece if the Washington-based lender was happy about the country’s determination to solve its debt problems.
That news followed Tuesday’s announcement that European finance ministers had agreed to safeguard their lenders and a pledge to protect Franco-Belgian lender Dexia following concerns over its exposure to the Greek debt crisis.
Barclays saw the biggest gains in the UK banks sector, up 7.7 per cent, while life insurers Aviva and Legal & General also stood out out, ahead 7.4 and 6.8 per cent respectively reflecting an easing in bond market exposure worries as well as a rise in their equity assets.
At the close, the FTSE 100 index was up 157.73 points, or 3.2 per cent at 5,102.17. The index had shed a similar amount over the previous two sessions.
“Optimism has returned to the equity markets when it looked like the end is nigh. Buyers were attracted back to stocks as investors are becoming more convinced that European leaders are now serious about recapitalising their ailing banks,” said Angus Campbell, head of sales at Capital Spreads.
“There was a hint of short covering too in today’s move higher as it was only yesterday that everyone was running for cover and couldn’t sell equities quick enough,” Campbell added.
Integrated oil & gas was the best performing blue chip sector, led by BP up 4.9 per cent, as the crude price recovered after recent fall
Specialty miners also found support, helped by a rally in the copper price, with India-focused Vedanta Resources the top FTSE 100 gainer, up 8.5 per cent ahead of second-quarter results due on Friday.
Building supplies firm Wolseley, which is heavily exposed to the US recovery via the housing market, was also a top FTSE 100 gainer, up 8.2 per cent, having fallen on Tuesday after a weak outlook statement.
There were mixed messages on the UK economy as the PMI services number surprised on the upside, but the final reading for British second-quarter growth was less than expected.
British retailers, however, missed out on the rally yesterday as downbeat updates from several in the sector provided a stark reminder of the challenges on the high street.
Tesco, the world’s third biggest retailer, posted one of its biggest-ever falls in underlying sales, while rival J Sainsbury saw only modest growth.
On the second-line, Mothercare plunged more than 40 per cent after warning its full-year results would be hit by deteriorating UK sales as British consumers reined in spending.
Supergroup fell almost 30 per cent after admitting supply problems would hit profits.
Next and Marks & Spencer were big blue chip fallers, off 2.3 per cent and 1.3 per cent respectively.
“Things might look better for the stock market today, but the high street is far from a happy place. British consumers could do with a boost, but it is unlikely the Bank of England can do much to help at its monetary policy meeting tomorrow, “said Mic Mills, head of electronic trading at ETX Capital.