FTSE records biggest weekly rise of the year so far

Leading UK shares have turned in their best weekly performance since the turn of the year - and their ninth best on record - despite an opening fall on Wall Street which took off some of the gloss.

The financial sector has been lifted in recent days by a series of comments from US banks - starting with a leaked memo from Citigroup - suggesting they had traded profitably in the first two months of the year. The mood was reinforced today by Citi's chairman Richard Parson saying the bank - which has received $45bn from the US taxpayer - did not need any more capital injections from the government.

On the economic front, investors welcomed reports from China and Japan suggesting that they both planned new stimulus packages to help combat the downturn. In the US, the trade deficit narrowed by more than expected, while consumer confidence picked up in March according to the latest University of Michigan survey. Rob Carnell at ING Bank said:

"Consumer spending and sentiment both seem to be benefiting from lower tax disbursements at the beginning of the year, which has resulted in stronger consumer cash flow. This may continue to provide some support over the next month of two, providing a slightly better macroeconomic backdrop than we have got used to in recent months. Market sentiment, which also appears to be looking for reasons to be cheerful, may well latch on to these modest improvements."

In London it did, with the FTSE 100 rising 41.62 points to 3753.68. But the index came off its best levels - it climbed as high as 3816.02 at one point - as Wall Street reversed earlier gains to show a 40 point loss by the time London closed. Even so, this week's 6.3% rise is the highest since the FTSE 100 added 8% in the final week of December 2008.

Insurer Legal & General continued its recent revival and ended 1.9p higher at 30.9p despite credit agency Fitch cutting its rating on the company, but Friends Provident fell 4p to 68.3p on profit taking.

Barclays was 2.2p better at 74.1p as Credit Suisse repeated its outperform rating and 110p price target. Analyst Jonathan Pierce said the bank might need to raise some £8bn if it put around £80bn of assets into the UK government's bail out scheme, but some of this could come from selling businesses such as Barclays Global Investors, which might fetch £4bn-5bn. Such a move would mitigate the need to issue vast swathes of new shares and dilute existing investors.

HSBC, which has been a volatile stock since announcing its £12.5bn rights issue, added 25.75p to 411.75p on the renewed optimism about Asian economies. Miners also benefited from hopes of a rebound in Chinese demand, with Xstrata adding 33.75p to 360p and Rio Tinto rising 17p to £20.77.

Property companies - which have begun to ease concerns about their balance sheets with a series of fundraisings - were also in demand. Land Securities climbed 29.5p to 370.5p while British Land was 22.5p better at 334p.

But advertising and marketing group WPP dropped 19p to 385.5p after Morgan Stanley cut its earnings per share forecasts by 7% for 2009 and 21% for 2010 to reflect a prolonged recession, and reduced its price target from 354p to 310p. It said:

"Our concern is that the 'defensive and late-cycle' areas of research and marketing services are actually performing worse than more 'cyclical' advertising."

Still with advertising, Aegis was steady at 74p ahead of results next week. Panmure Gordon suggested the company could sell its research division Synovate for £330m, which could pave the way for a merger with French rival Havas. The latter's chairman Vincent Bollore has stakes in both businesses, and has recently hinted of a link-up between the two.

Consumer products group Reckitt Benckiser rose 40p to £26.24 on talk it might bid for the European household and personal care businesses of US group Sara Lee, which are said to be up for sale. Another possible bidder, Unilever, lost 18p to £12.92.

Defensive stocks such as cigarette groups slipped back, with Imperial Tobacco down 25p at £16.20 and British American Tobacco off 32p at £16.58.
Mike Lenhoff, chief strategist at Brewin Dolphin, said:

"A change in sector leadership - from defensives towards cyclicals, the likely beneficiaries of expansionary monetary and fiscal policies - appears to be underway in the UK equity market."

Broadcaster ITV dipped 1p to 19p as Credit Suisse cut its price target from 34p to 25p, while directories group Yell - which is set to drop out of the FTSE 250 and into the small cap index - fell 1.5p to 13.5p.

Elsewhere private equity group Candover Investments climbed 28.25p to 147p as it revealed approaches which could lead to a possible bid, while retailer JJB Sports jumped nearly 19.5% to 11.5p following a report that founder Dave Whelan could pay up to £70m to buy the company's fitness clubs. A standstill agreement with its banks over its £60m debt is due to run out on Monday.