FTSE jumps 1.6% as banks and miners lead bounce

Wed Jul 9, 2008 12:13pm EDT
* FTSE 100 up 1.6 pct; analysts doubt rally's sustainability

* Banking stocks lead the upside after Fed comments

* Miners track rising metal prices, Alcoa results

By Michael Taylor

LONDON, July 9 (Reuters) - Britain's blue-chip index ended 1.6 percent higher on Wednesday as beaten-down banking stocks rebounded, while firmer metal prices buoyed miners.

The FTSE 100 .FTSE rose 89.1 points to 5,529.6 after falling 1.3 percent in the previous session, and is down 14.3 percent for the year to date.

But with data light and volumes thin, many market participants doubted the sustainability of the rise on the UK benchmark.

"Equity markets are reacting to the likelihood of recession. The U.S. economy is verging on recession and, as for the UK, a recession may be under way already," said Mike Lenhoff, chief market strategist at Brewin Dolphin.

"Interest rates and oil prices need to come down before confidence in equity markets returns," he said, cutting his year-end target for the FTSE 100 to 6,200 from 7,200.

Banks were the leading sector, accounting for 24 positive index points after Fed Chairman Ben Bernanke said on Tuesday the U.S. central bank may keep an emergency lending facility for big Wall Street banks open longer than it initially intended.

Barclays , Royal Bank of Scotland , HSBC , HBOS , Lloyds TSB and Standard Chartered advanced between 1 and 6.7 percent.

Mid-cap Bradford & Bingley , which has been battered by concerns over its future and the impact of a deteriorating UK economy, bounced 27.2 percent despite several investment banks cutting their price targets on the lender.

The Bank of England began a two-day rate-setting policy meeting and will announce its verdict on Thursday. Analysts expect the central bank to leave rates unchanged at 5 percent.

Miners tracked higher metal prices, with gold trading higher after news that Iran had test-fired nine long-range and medium-range missiles.

BHP Billiton , Rio Tinto , Vedanta Resources , Anglo American , Antofagasta , Ferrexpo and Xstrata were all up between 0.4 and 5.1 percent.

U.S. aluminium producer Alcoa also boosted sentiment after it posted stronger-than-expected results late on Tuesday.

Within the commodity sector, Tullow Oil added 0.5 percent after the oil explorer gave an optimistic outlook for reserves and for the production start-up at its main Ghana field and disclosed another discovery in Uganda.
In individual shares, London Stock Exchange jumped 10.3 percent to top the FTSE 100 leaderboard and recover some recent losses after the company said its revenue for the first quarter rose 8 per cent to 178 million pounds.

"Traders are speculating that losses in financial firms will not be as bad as initially feared," said David Evans, market analyst at BetOnMarkets.com. "Iran's testing of missiles has caused a small spike in crude oil prices back towards $140, but the reaction is small in comparison to previous gut-wrenching moves seen over the last fortnight."

BP , Shell and Petrofac all traded lower.

"In all it is a relatively slow day for global markets with most of the day's movement in Europe a reaction to the previous night's buying in the U.S.," added Evans. WPP Group reversed earlier losses to end up 1.2 percent after the world's second-largest advertising company launched a hostile bid worth 1.08 billion pounds ($2.13 billion) for British market research firm Taylor Nelson Sofres , which gained 10.7 percent as Germany's GfK Holdings said it was working on a rival cash offer.

Other media stocks boosted by the positive sentiment included ITV , BSkyB and Yell Group . (Additional reporting by Dominic Lau and Atul Prakash; Editing by Quentin Bryar)