FTSE 100 close: HSBC leads banks higher

By Adrian Lowery
Updated: 12:20 EDT, 18 August 2009

London shares recovered their poise after sudden losses yesterday on the back of fears over the strength of the world economy.

The FTSE 100 index of leading shares closed 40.77 points higher at 4,685.78 as banks and mining stocks recovered some of their recent losses.

And in the US, the Dow Jones opened strongly, gaining 77.92 points in morning trading to finish at 9213.26.

'The market is recovering after Monday's drop thanks mainly to a switch back by miners, oils and banks, but there remains some nervousness on the economic picture, particularly ahead of today's UK inflation numbers,' said Mic Mills, senior trader at spread betters ETX Capital.

CPI inflation held at its 1.8% in June, the Office of National Statistics revealed today.

Banks were the biggest blue chip gainers early on, led by HSBC, which was boosted 18p to 656p by a note from Goldman Sachs saying its troubled US unit will stop being a major drag on earnings earlier than expected, upgrading the stock to 'buy' from 'neutral'.

'On our updated estimates, HSBC Finance will cease to be a major drag on group earnings from 2010 onwards,' Goldman analysts say in a note.

It lifts its price target on the shares to 820p from 580p and the stock adds 2.7% to 655.1p, one of the top FTSE 100 performers.

Cazenove analysts also say HSBC and Royal Bank of Scotland are its preferred UK bank picks, rating both 'outperform'.

Royal Bank of Scotland is believed to be looking at following Barclays and Lloyds Banking Group and selling part of its asset management arm, the Daily Express reported. RBS shares rose 1.29p to 46.18p.

Miners were helped by sturdier copper prices after having taken a mauling from last week's weak US consumer confidence data. Miners drove the recovery after heavy falls yesterday, with Xstrata leading the way following a gain of 16p to 758p. Kazakhmys added 16.5p to 880p while Rio Tinto closed 37p higher at 2,282.5p after moving to reduce debt with a deal to sell the bulk of its Alcan Packaging business for £1.2bn.

First-quarter results from British Land impressed Banc of America Securities-Merrill Lynch, which issued a bullish note on the sector. The broker upgraded its rating for both British Land – 13.2p down at 483p - and Liberty International – 0.1p up at 472.5p - and raised targets for their blue chip peers Hammerson and Land Securities.

British Land posted a smaller-than-expected 9% fall in first-quarter net asset value to 361p.

Oil services firm Petrofac was a notable FTSE 100 faller, down 9p to 873p after Morgan Stanley cut its stance to 'equal-weight' from 'overweight', with mid-cap peer Wellstream down 4p to 540p after a Citigroup downgrade.

Shares in ITV gained 0.76p to 47.05p after a UBS note pointed out that the broadcaster may re-enter the FTSE 100 index in September.

UBS pins its hopes of a return for ITV on the failure of Pennon and F&C Asset Management to recover their share prices, and both Logica and Tate & Lyle to fall further than ITV.

'The probability of ITV entering the Footsie is slim but would clearly add technical support to the stock,' the broker says in a note. UBS has a 'neutral' rating on ITV.

The leading riser in the FTSE 250 index was the marine services business James Fisher after it unveiled the £5.25m acquisition of MB Faber, a Lancashire-based specialist in the nuclear and aerospace industries. The deal cheered shares, which lifted 8% or 37.5p to 497.6p.

Meanwhile, car dealership Pendragon fell 2.25p to 42.75p after it revealed a fall in first-half profits but said demand was improving in the used and new car markets.

And Barratt Development was lower for a second successive session as investors continued to fret about the prospect of a £500m rights issue. Shares in the housebuilder were off 8p at 218.4p.

Shares in Mears, the social housing and repairs provider, sunk 6p to 265p after an increase in first-half operating profit that prompted Altium Securities to repeat its 'buy' rating on the stock failed to sway traders.

Altium says the results are 'strong' and 'Mears represents an attractively valued defensive growth story', adding that small consensus upgrades are possible.

Rok shares fell 9.5p to 48.5p after the property repair and maintenance firm posted a 47% drop in first-half pretax profit, prompting Evolution to cut its recommendation to 'add' from 'buy'.

Panmure Gordon analyst Andy Brown said the shares, which are up 18% over the last month, have had a good run recently and believes they will turn positive again after some price weakness.