Jittery FTSE 100 swings to a gain as traders fret over Spain’s prospects

BRITAIN’S top share index ended higher yesterday after another volatile session, recovering from a fall in the afternoon as Spanish bond yields hit their highest levels of the euro era on worries about the impact of its banking bailout.

Initial relief over an aid deal agreed on Saturday for the country’s banks has quickly turned to concern over how easily Spain will be able to access debt markets in the longer term.

Volatility was also engendered by worries over a possible Greek exit from the Eurozone – accompanied by spillover fears for the rest of Europe – if this Sunday’s general election in the country returns an anti-bailout government.

The FTSE 100 index closed up 41.37 points, or 0.8 per cent, at 5,473.74, near the top of a 60 point trading range for the day, in relatively thin volume of 75 per cent of the 90-day daily average.

The FTSE 100 volatility index was up 1.8 per cent yesterday, having gained nearly four per cent in the previous session.

Market heavyweight Vodafone accounted for a chunk of the FTSE 100’s gains, with its 2.1 per cent advance equating to around seven points on the index, with the mobile telecoms firm helped by some positive broker comment.

BofA Merrill Lynch repeated its “buy” rating and 215p price target on Vodafone saying it sees positive catalysts remaining for the group in Europe and the United States.

Precious metal miners Randgold Resources and Fresnillo were also among the strongest performers, up three and 2.4 per cent respectively, as the gold price rose above $1,600 an ounce, with volatile markets favouring the traditional safe-haven metal.

US blue chips were equally volatile yesterday, opening higher after big falls in the previous session, before dipping back, and then recovering to print a rise of around 0.9 per cent by London’s close.

Inter-dealer broker ICAP was a top British blue chip gainer, up 2.7 per cent with Faraday Research seeing the firm doing well in volatile and fluctuating markets.

“More volatility and uncertainty would lead to more trades, which in turn leads to more commission for the company. Right now looks to be the calm before the oncoming storm,” said David Lowery, equity analyst at Faraday Research. “With a potential spike in volatility just around the corner, we feel ICAP is perfectly placed to see earnings and profits increase over and above current forecasts.”

In marked contrast to the blue chips, and again illustrating the market’s volatility, British mid cap stocks were sharply lower, with the FTSE 250 index down 0.9 per cent.

Weakness in British housebuilders was a drag on mid cap sentiment, with Redrow, Bovis Homes, and Persimmon worst off, all down around two to three per cent after some disappointing domestic economic data.

The latest RICS survey showed British house prices falling at a slower pace in May, although the outlook worsened as the Eurozone crisis intensified and sales took a temporary hit from the expiry of a tax holiday.

And British manufacturing output posted a surprise fall in April, official data showed yesterday, raising the risk of a longer recession and piling pressure on policymakers to take action to boost growth.