Year-end portfolio reshuffles help to boost the FTSE 100

BANKS buoyed the FTSE 100 yesterday as Goldman Sachs analysts said the take-up by lenders of ECB loans should be seen as an “important positive” and market bulls attempted to push the index through important technical levels.

London’s blue chips closed up 67.23 points, or 1.3 per cent, at 5,456.97, although the index failed to push on from an earlier high of 5,469.03 in volumes that were just 61 per cent of their 90-day average.

Traders, however, said like shoppers dashing for last-minute Christmas gifts, much of yesterday’s moves can be put down to investors and fund managers balancing their portfolios with cheap stocks ahead of the festive break.

The FTSE 100 is down 0.9 per cent in choppy trade in a month which on average benefits from the Santa rally, with investors still paralysed by concerns over the economic outlook.

Commenting on recent market trends Jerome Booth, head of research at Ashmore Investment Management, said: “Volatility is high. Banks are momentum trading, whipping up client a bid to increase turnover in conditions of wide bid/offer spreads.

He said investors should steer clear of the momentum trading currently driving markets and focus on true value -- when asset prices are clearly out of line with the asset’s riskiness.

For now the momentum trade was back on with the banks and other riskier assets such as miners – sectors which have sorely underperformed in 2011 on the back of global debt and growth concerns – higher, as central banks continue to takes steps to inject stimulus to boost growth and market confidence.

Goldman Sachs said the large take-up by lenders of the European Central Bank’s long-term refinancing operation on Wednesday is an important positive, underpinning banks during the sovereign storm and it expects the amount to grow further still in the February auction.

The broker said Lloyds Banking Group and HSBC, up 3.7 and 1.8 per cent respectively, are top picks among its group of investable banks and are both conviction ‘buys”.

Insurers also saw strong support on hopes that the euro zone debt situation could be eased by the injection of liquidity from the ECB, with Old Mutual up 4.2 per cent.

Miners, which have lost around 30 per cent of their value in 2011, were higher with Kazakhmys up 3.6 per cent. Among the integrated oils, heavyweight BP added 2.4 per cent.

Among individual gainers, International Consolidated Airlines Group (IAG) added 3.3 per cent after it signed a deal to buy BMI from Germany’s Lufthansa.

The FTSE was also supported by economic data in the United States which bolstered optimism that the world's largest economy was gaining momentum.

Britain revised up third-quarter GDP growth slightly to 0.6 percent but trimmed its second-quarter estimate to show the economy stagnated between April and June.

But with the risk trade back on, it was the perceived defensive assets which dominated the downside with the likes of Compass Group off 0.6 per cent and gold miner Randgold 1.7 per cent lower.

Man Group missed out on the financials rally, shedding 0.4 per cent as analysts warned continued market volatility would hit the fund managers earnings outlook over the next couple of years.