RBS and Lloyds lift FTSE 100 on divestment talk

BRITAIN’S top share index rallied in thin volume yesterday as speculation about the divestment of the government’s stakes in Royal Bank of Scotland and Lloyds Banking Group lured buyers into UK lenders.

RBS rose 4.4 per cent to lead gains in the FTSE after reports that minority shareholders will be able to block a government plan to split it into a good and a bad bank, the latter of which would likely need to be recapitalised after the break-up.

Further fuelling appetite for UK financial shares were reports investors were considering buying up to half the British government’s stake in Lloyds, which rose 3.8 per cent to a two and a half year high.

Financial shares added 19.3 points to the FTSE 100, which rose 74.55 points, or 1.2 per cent, to 6,450.07 points, nearing technical resistance at 6,500 points which capped the index on Friday.

“Some profit-taking is inevitable in the FTSE 100 after the strong rally from 6,000 two weeks ago,” TradeNext strategist Ronnie Chopra said.

“Expect some selling pressure as 6,500 approaches.”

The FTSE has jumped nearly seven per cent in the past two weeks as investors took heart from recent data showing improving economic conditions in Britain and the US.

“We do see an economic recovery slowly unfolding in Britain,” said Andrew Cole of Barings’ multi-asset team, which manages £39bn of assets.

“We take a more optimistic view about equities generally. We tend to be in the United States, the UK and Japan.”

Cole said that while he was aware of an expected slowdown in the world’s top metals consumer China, he highlighted London-listed mining stocks as a possible buying opportunity. Thomson Reuters data showed the specialty mining and metals sector trading at a 10.5 multiple, a level which triggered a rebound in April.

“At today’s valuations, there’s quite a lot of pessimism priced into that sector,” he said. “A lot of junior names are more speculative (but) you’d think that the majors have the potential for self help.”

With the exception of some heavily traded financial shares, volume was light at 82 per cent of the FTSE’s 90-day average.

Meanwhile European shares also rebounded The FTSEurofirst 300 closed up 1.4 per cent at 1,179.68 points, having dropped 1.3 per cent on Friday after robust US jobs data