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Britain's FTSE rises to six-month closing high
Published on 24th January 2012 by Gareth Evans
LONDON, Jan 23 (Reuters) - Britain's top share index hit a six-month closing high on Monday, fuelled by banks and commodity stocks, as fears receded over the potential for a messy Greek default in Europe's debt crisis.
The UK benchmark index ended up 54.01 points, or 0.9 percent, at 5,782.56, its highest close since July 29.
Banks rose, with investors cautiously optimistic about the outcome of a meeting of euro zone finance ministers in Brussels to discuss Greek debt restructuring.
The mood brightened when French Finance Minister Francois Baroin said to journalists in Paris that a deal with private sector investors about resolving Greece's debt crisis was taking shape.
"It's a reminder that, actually, the European sovereign debt crisis isn't insurmountable," Henk Potts, market strategist at Barclays Wealth, said.
"If European politicians were able to solve Greece then that would be a significant step in the right direction. It wouldn't be the total solution but at least it would show that they were travelling on the right road."
Also aiding banking stocks, said traders, were newspaper reports that France and Germany will call for a relaxation of Basel III global bank capital rules to prevent lending to the real economy being choked off.
But Michel Barnier, European Commissioner in charge of financial regulation, said on Monday that he would stick strictly to the implementation of Basel III.
Traders also cited an improving overall macroeconomic outlook as supportive of commodity stocks, with recent better-than-expected data out of the United States boosting hopes for a strong reading in its fourth-quarter GDP, due on Friday.
Preliminary data for the fourth quarter is expected to show the U.S. economy grew 3 percent, against 1.8 percent in the previous quarter.
"You've got to factor in that the FTSE's very commodities based, so any perception that there's going to be an economic recovery is going to help risk appetite," Michael Hewson, market analyst at CMC Markets, said.
Reflecting this more upbeat view, UBS has upgraded global equities to "overweight" from "neutral", arguing risks to economic growth and the stability of the financial system have abated, although it remains cautious on Europe and Japan.
The bank warned that growth is likely to remain tepid, and there remain challenges for equities, but recommended using any pullback in share prices as an opportunity to add risk.
"We believe investors should begin to adopt less defensive and incrementally more cyclical positions," UBS said in a note.
"As double-dip and financial risks fade, risk premiums should fall to reflect a more stable backdrop, allowing higher PE (price-to-earnings) multiples, even as earnings growth slows."
Source: Reuters