U.K. Stocks Rally; BP, Royal Dutch Shell, HSBC Lead the Advance

By Sarah Thompson

Oct. 17 (Bloomberg) -- U.K. stocks rallied for the first time in three days as investors bought shares in energy producers and financial companies after the FTSE 100 Index traded at the cheapest relative to earnings this decade.

BP Plc and Royal Dutch Shell Plc climbed more than 8 percent after oil advanced for the first time in four days. HSBC Holdings Plc, Europe's biggest bank by value, advanced 2.7 percent as the cost of borrowing dollars in London headed for its first weekly drop since July.

The benchmark FTSE 100 advanced 192.15, or 5 percent, to 4,053.54 at 4:15 p.m., extending this week gain to 3.2 percent. The FTSE All-Share Index increased 4.2 percent today and Ireland's ISEQ Index lost 0.2 percent.

``Almost everyone thinks there are cheap stocks out there,'' said Tony Dolphin, director of strategy and economics at Henderson Global Investors in London, which manages about $125 billion. ``Money markets are still some way from returning to normal, but if it's a mild recession, then buying now will be a good medium-term plan.''

Concern the seizure in credit markets will trigger a global recession has erased $27 trillion in value from stocks worldwide, dragging the FTSE 100 down 38 percent this year. Financial firms reported $660 billion in losses and writedowns from mortgage-related investments since the beginning of 2007.

Losses in the FTSE All-Share Oil & Gas Producers Index and the FTSE All-Share Banks Index in the past two days left both measures trading near the lowest prices relative to their members' estimated profits since at least 2005, when Bloomberg data on the estimates start.

The FTSE 100 yesterday was valued at 7.4 times earnings, the cheapest since at least 1999.

BP, Europe's second-largest oil company, climbed 8.6 percent to 431.5 pence. Shell, the region's largest, added 6.5 percent to 1,378 pence.

Crude Rebounds

Crude oil rebounded from a 13-month low in New York as stock markets rallied and on speculation OPEC may announce production cuts at a meeting next week.

HSBC gained 2.7 percent to 792 pence. The London interbank offered rate, or Libor, for three-month loans in dollars dropped for a fifth day, sliding 8 basis points, or 0.08 percentage point, to 4.42 percent, the British Bankers' Association said.

It declined 40 basis points this week. The overnight rate for dollars slid 27 basis points to 1.67 percent, the lowest level since September 2004. Asian rates also fell.

The following stocks also gained or fell in the U.K. market. Stock symbols are in parentheses.

U.K. companies:

Computacenter Plc (CCC LN) jumped 4 pence, or 4.5 percent, to 93. The U.K. seller of personal computers said sales in the third quarter advanced 6 percent, helped by the weaker pound against the euro.

Imperial Energy Plc (IEC LN) added 45 pence, or 5.1 percent, to 935. Oil & Natural Gas Corp., India's biggest exploration company, said the global credit freeze won't hamper plans for its 1.4 billion-pound ($2.4 billion) acquisition of Imperial Energy.

Inchcape Plc (INCH LN) decreased 50 pence, or 39 percent, to 76.75. The global operator of car dealerships said 2009 earnings will be ``significantly'' below its forecasts as waning consumer confidence restrains auto sales.

Premier Foods Plc (PFD LN), the second-largest U.K. bread baker, declined to comment on the biggest drop by its stock since trading began in July 2004. Premier plunged as much as 54 percent, wiping about 158 million pounds ($274 million) off its market value. Speculation is circulating about a breach of banking covenants, said Martin Deboo, an analyst at Investec Securities in London. The shares last traded 9.3 percent lower at 31.75 pence.

Rank Group Plc (RNK LN) jumped 3.5 pence, or 6.2 percent, to 59.75. The second-largest U.K. casino owner said a sales drop slowed in the last 3 1/2 months after it won permission to install more electronic gaming machines in bingo clubs.

U.K. Coal Plc (UKC LN) decreased 66.75 pence, or 33 percent, to 133.5. The nation's biggest miner of the fuel fell the most ever in London trading after saying full-year output will ``significantly'' miss a previous target because wet weather curbed third-quarter production.

Irish Companies:

Ryanair Holdings Plc (RYA ID) increased 30 cents, or 15 percent, to 2.35 euros. Europe's biggest discount airline ordered 10 Boeing 737 aircraft in an order valued at about $745 million at list prices.

To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net.