London rises to highest close in 3 weeks on Dubai bailout

BRITAIN’S top share index closed at its highest level in a week yesterday, led by banks, after Abu Dhabi bailed out Dubai with $10bn in surprise aid, with commodities stocks also notching up solid gains.

The FTSE 100 closed up 53.77 points at 5,315.34, its highest close since 4 December, adding to a rise the previous session when it ended up 17.20 points, or 0.3 per cent.

“A decent sort of move -- it got a lift this morning with the bailout to some extent for Dubai World, so I think that’s relieved a few anxieties,” said Mike Lenhoff, a strategist at Brewin Dolphin.

Banks were in demand as investor concerns over their exposure to Dubai’s debt problems eased. Standard Chartered fared best, up 4.3 per cent, supported too by a Credit Suisse upgrade, while HSBC, Barclays and Royal Bank of Scotland added 1.3 to 2.4 per cent.

Dubai said funds provided by Abu Dhabi would help towards repaying a $4.1bn Islamic bond maturing on Monday, while the excess would be used to meet state-owned conglomerate Dubai World’s needs up until the end of April 2010.

But Lloyds Banking Group lost 1.9 per cent. Lloyds completed a record £13.5bn rights issue yesterday, ending a turbulent period for the bank and shifting investor focus to a potential government stake sale in 2010.

However other financial sector shares found support, with London Stock Exchange the top FTSE 100 riser, up 9.9 per cent as worries that shareholder Dubai Bourse might have to sell its stake in the British firm receded.

Insurers Prudential, Aviva, Profile, and Standard Life added 0.1 to 2.7 per cent.

Heavyweight commodity stocks gained too as the demand picture continued to improve, helped still by last week’s solid data from major consumer China.

Among the miners, Lonmin, Vedanta Resources, BHP Billiton, Anglo American, Rio Tinto and Xstrata added 1.3 to 3.7 per cent against a backdrop of firmer metals prices.

Oil majors BG Group, BP and Royal Dutch Shell added 0.9 to 1.6 per cent, despite a slightly weaker crude price.

Whitbread stood out among individual gainers, up 3.8 per cent, after the hotels to coffee shops operator said in a trading update that it expected its 2009-10 results to “somewhat exceed” market estimates. .

“The market has been consolidating for some six weeks now and the usual December gains have not materialised,” said Angus Campbell, head of sales at Capital Spreads.
“This sideways trend means there could be an expansive move in either direction very soon, however it's unlikely to be before Christmas and may even coincide with the New Year.”

The index is up about 54 per cent from a six-year low hit in March, though is still 1.9 per cent below its level of mid-September 2008, before the collapse of Lehman Brothers.

British Airways dipped 0.2 per cent. Thousands of BA cabin crew voted to strike, hours after the airline revealed a £3.7bn hole in its pension fund that will require deft handling by management if a proposed merger with Iberia is to stay on track.

With no significant economic data released in the UK, or due in the United States, the macro focus was on the latest two-day Federal Reserve meeting, which kicks off on today, with an interest rate decision due after the London close on tomorrow.