Hopes of revival for financial sector drives the FTSE higher

BRITAIN’S leading share index rallied yesterday, powered by banks, on hopes for further upbeat earnings in the sector after Barclays and French peer Societe Generale set the standard.

HSBC gained 2.8 per cent, Royal Bank of Scotland rose 4.3 per cent and Barclays, which reported results on Tuesday, was up 1.0 per cent.

Societe Generale nearly quadrupled fourth-quarter net profit and said plans to get profit back to pre-financial crisis levels were on track.

The FTSE 100 index closed up 48.19 points, or 0.8 per cent, at 6,085.27, wiping out a 0.4 per cent slide on Tuesday.

Insurers joined in the rally with Resolution up 6.1 per cent, after Redburn Partners initiated coverage of the stock with a “buy” rating.

Financial stocks have enjoyed a bullish start to 2011, with traders pointing to their underperformance in 2010, future earnings growth potential and clarity over Europe’s debt situation as reasons for the gains.

“The hope is that Barclays’ excellent numbers have set the tone for a solid reporting season from the financials, including state owned giants RBS and Lloyds. RBS rallied nearly four per cent to 47p as Credit Suisse and Deutsche suggested they could be the best placed to benefit from recent regularity changes,” said Giles Watt, head of equities at City Index.

A March 24-25 gathering of European Union leaders will cap a series of meetings to flesh out a “comprehensive package” of measures to placate markets.

“The fact there appears to be more willingness to address the European situation has ... helped sovereign debt spreads come in, in the year to date, and that’s positive for banks and their exposure,” Neil Tong, head of UK equities at Alliance Trust, said.

The governor of the Bank of England warned against investors jumping to conclusions about when it would raise interest rates.

Sterling beat a minor retreat and interest rate futures rose after the BoE’s quarterly inflation report, as some investors had priced in a more hawkish outlook for monetary policy.

“(BoE governor) Mervyn King’s comments are perhaps less hawkish than some expected, so that’s helping the FTSE bed in above the 6,000 level,” said David Morrison, market strategist at GFT Global.

Real estate firms climbed with Land Securities and British Land up 3.6 per cent and 2.7 per cent respectively, after HSBC raised its ratings for both.

GKN added 4.5 per cent as Investec Securities started coverage of the automotive parts maker with a “buy” rating.

Invensys and IMI rose 1.2 and 0.9 per cent respectively, after Barclays Capital initiated coverage on both with an “overweight” rating.

Miners were the biggest drag on the FTSE 100, extending Tuesday’s declines on further metals price weakness.

BHP Billiton fell 1.4 per cent after saying it plans to pour $80bn into expansion over the next five years rather than chase ambitious takeovers, as it nearly doubled first-half profit.

Fellow Miner African Barrick Gold rose 1.0 per cent after better-than-expected full-year results.

Tullow Oil shed 1.3 per cent. The oil explorer said drilling at its Gharabi-1 well, offshore Mauritania, was unsuccessful.