UK shares surge as global deal boosts banks and China data cheers investors

THE UK’s top share index ended higher yesterday after banks rose sharply in response to a new deal over global banking rules while mining shares gained on the back of bullish China industrial data.

The FTSE 100 closed up 63.89 points, or 1.2 per cent, at 5,565.53 points, a fresh four-month closing high.

“It has been a strong performance across all sectors today,” said Anthony Grech, head of research at IG Index, adding “those of a more optimistic persuasion” were starting to think of a return to the April highs above 5,800 before year-end.

Banks added the most points to the index after a deal by regulators on Sunday gave banks an extended period in which to more than triple their minimum cash reserves and help prevent a fresh credit crisis.

The deal capped fears of a stampede for fresh capital and prompted fresh buying, with state-backed Lloyds Banking Group leading the sector with a 2.6 per cent gain.

“A lot of investors are flying to Lloyds because the potential for upside is better,” said Kishan Mandalia, trader at City Index, citing its undervaluation relative to Barclays and stronger balance sheet than state-backed peer RBS.

The generous time given to banks to build up balance sheet strength had particularly helped Lloyds and RBS, which rose 2.3 per cent, said IG Index’s Grech. UK insurer Prudential added three per cent to hit an 8-month high after reports a group of Chinese investors were mulling a takeover bid. On the downside, Associated British Foods fell 1.5 percent after sales growth at its Primark unit slowed and it warned of lower profit margins at the retailer due to higher cotton costs and taxes.