Financials and housebuilders ensure FTSE gains
A financial sector recovery ahead of key events tomorrow fuelled blue-chip gains, while housebuilders secured a strong mid-cap performance
The FTSE 100 index closed up 0.9% or 32.54 points at 3,848.98 and the FTSE 250 index, which is generally seen as a more accurate representation of the UK economy, rose 2.3% or 136.4 points to 6,042.15.
Over in the US, however, Wall Street slipped into the red as US banks continued to feel the pressure of nationalisation looming. President Obama last night pledged to shore up the US financial system but his comments also raised concerns that major banks Citigroup and Bank of America could be drawn into administration.
Here in the UK, the market is expecting to hear tomorrow that the Treasury has struck a deal with Royal Bank of Scotland and Lloyds Banking Group that will see the Government insure up to £500 billion of the banks’ toxic assets. Whether this plan will be more effective in returning stability to the financial sector than nationalisation has been hotly debated.
It is hoped that this news will accompany RBS’s final results, due in pre-opening deals, at which the group is expected to enter the British record books with the largest corporate loss in history. Shares in the bank and its peers led Wednesday’s FTSE 100 index higher, however, amid optimism that tomorrow’s events could provide the industry with an opportunity to put the worst behind it and put a floor under the share prices.
RBS shares were up 4.5% at 23.1p by the end of play, while Barclays, which could also participate in the Government’s asset protection scheme is the price is right, added 7.5% at 105.6p. Lloyds, which will unveil its own full-year results on Friday, closed 6.5% higher at 57.4p.
Other financial plays were also buoyed by improved sentiment in the sector, with ICAP the top-performing blue-chip, 12.4% better at 232p, helped further by an upbeat broker report.
Oil majors provided the index with an additional boost as oil prices gained 5% to US$42 per barrel on the back of a greater-than-expected fall in US crude inventories. Cairn Energy ticked up 2.4% to 1,916p, BP added 2.1% at 464.5p and BG Group rose 1.9% to 1,010p.
Defensives were out of favour in the rising market, with pharmaceuticals giant AstraZeneca also hit by negative sentiment in the sector after Swiss peer Novartis said foreign exchange volatility will impact its quarterly earnings. Astra shares slipped 0.6% lower to close at 2,400p.
On the second tier, housebuilders enjoyed a rally—a rare thing of late—after Barratt Developments issued encouraging sales and site visitors figures for the past six weeks that overshadowed its first-half pretax losses of more than £590 million. The group’s ability to reduce debt over the past year also helped distract investors from its earnings figures.
Barratt jumped 13.6% to 81.25p on the FTSE 250 index and was closely tracked by peers Bellway, up 10.2% at 616p, and Redrow, 6.4% firmer at 133p.
