Upbeat US outlook lifts FTSE but Eurozone worries linger

BRITAIN’S top shares ended a shade higher yesterday, notably banks, after a better than forecast report on industrial output in the United States and as Fitch confirmed that nation’s top credit rating with a stable outlook.

The UK benchmark index ended up 7.05 points, or 0.1 per cent, at 5,357.63, having spent much of the day in the red, dipping as low as 5,265.83, on weak German GDP data.

Volumes were thin, however, at 78.2 per cent of the 90-day average, exaggerating the index’s moves.

Banks , pressured earlier in the day, found support after the Fitch announcement, giving the world’s largest economy a reprieve after it was downgraded by Standard & Poor’s little more than a week ago.

Strength from integrated oil stocks also helped prop up the index, with the sector staging something of a recovery as the buoyant US data pulled oil prices off earlier lows.

US industrial output rose in July at its fastest pace in seven months as strong auto production boosted manufacturing, and as Americans turned up the air conditioning to combat hot weather.

BG Group firmed 1.9 per cent, but Royal Dutch Shell and BP slipped 0.5 per cent and 0.1 per cent, respectively.

Trading was choppy heading into the close as investors keenly awaited news out of the meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel.

The data showing German gross domestic product growth slowed by more than expected in the second quarter brought the Eurozone debt situation sharply into focus, with traders saying it raised doubts about the ability of the country to help out the weaker economies.

“On one side you’ve got the indebted European countries, but actually there were real hopes that core Europe would continue to grow strongly and that of course at least gave them some breathing space to try and solve some of the (region’s) problems,” Henk Potts, market strategist at Barclays Wealth, said.

“I guess this calls into question whether core Europe can really grow in isolation from the problems that are being experienced by its major trading partners around it.”

Sentiment was further soured by a subsequent reading of Eurozone GDP, which showed the region’s economy grew less than forecast in the second quarter.

Gold miner Randgold Resources grabbed the top spot on the FTSE 100 leader board, as uncertainty ahead of the Merkel/Sarkozy meeting boosted the gold price.

Old Mutual gained 2.5 per cent as JPMorgan Cazenove upgraded its rating for the South Africa-focused insurer and fund manager to “overweight” from “neutral” following recent first-half results.

Upbeat broker sentiment also gave British American Tobacco a lift, up 2 per cent, after Nomura increased its earnings per share estimate and price target for the cigarette manufacturer.

ARM Holdings, meanwhile, firmed 1 per cent, with traders citing strength in global technology stocks and a change in the mobile landscape following Google’s takeover of handset maker Motorola Mobility announced on Monday.

Broker Merchant Securities said the $12.5bn takeover by Google raised the opportunity for faster product innovation from rivals that would continue to drive the adoption of smart-phones and cellular connected tablet personal computers.