Strong bank stocks drive FTSE 100 towards top of recent trading range

BRITAIN’S top share index notched up strong gains yesterday, and was on the cusp of breaking out of its recent trading range, as investors welcomed a media report saying Germany could adopt a softer approach towards financial aid to Spain.

The index was already firmly in positive territory, helped by solid US corporate results and macro data, and a German ZEW survey pointing to a bigger than expected pick up in analyst and investor sentiment this month.

“For me the real mover and shaker has been the shift towards getting even closer towards a Spanish bailout, and that's what the markets have been waiting for,” said Angus Campbell, head of market analysis at Capital Spreads. “It’s time to get back into risk assets.”

Banking stocks were the best performers yesterday, led by a 6.1 per cent rise in Lloyds Banking Group, with traders saying the bank was helped by reports late on Monday that Britain’s financial regulator had given the green light for it to go ahead with a plan to bolster its finances by swapping assets with its insurance arm.

The FTSE 100 closed up 64.93 points, or 1.1 per cent, at 5,870.54, adding to the previous session’s 0.2 per cent gain.

While there appeared to be more optimism, the potential for downside risks was also illustrated, with GKN off 3.4 per cent in hefty trading volume, after the car and plane parts maker said a sluggish European automotive market weighed on third quarter profit and that a continued slump could hurt the group for the remainder of the year.