FTSE 100 close: Bulls lose grip after 5-day run

 

The bulls desperately fought to keep their grip on the market in early trading today. But after five straight days of gains, which took the FTSE 100 to its highest level in a year, profit-taking threatened to push shares into negative territory.

City trader traders stock exchange market

Friday falls?: Will shares retreat ater a week of gains.

Trading volumes were low as the market struggled to find direction, initially dropping 12 points before recovering to yo-yo around the start line. It closed up 8.94 points today at 5,163.95 - a 3.22% gain on the week.

London shares recieved an afternoon boost from Wall Street when the Dow Jones opened 50.41 points, or 0.5%, higher at 9834.3. The Footsie closed up 39.82 points at 5,163.95 yesterday as investors continued to feel braver about the prospects for the world economy.

But the debate continues to rage. 'Many believe that we have been watching a huge bubble in the making, thanks to intervention by the Federal Reserve – hence the rally in banking, hi-tech and industrial stocks and the improvement in the housing market,' said David Buik, a partner at broker BGC.

'These people think that the rally has little or nothing to do with the green shoots of recovery: it is all about the liquidity the Fed has provided for the banks, which has resulted in the stock market being run up, setting it up for a gigantic crash at some point.'

With a dearth of corporate news, today's announcement on UK public sector borrowing figures for August provided the only potential for drama at 9.30am. But it left investors indifferent with the figure for net new borrowing at £16bn, slightly below expectations of £17.5bn.

Debt continues to move up the political agenda. It's unsurprising given the £805bn debt mountain that now drags on the economy. Economists fears that it may double in the next decade to £1.5 trillion or 100% of national output unless drastic action is taken to slash spending or raise taxes.

Sterling was already under pressure ahead of the announcement and the debt figures had little impact. It slumped to a four-month low against the euro, stung by news that the government was tightening the terms for Lloyds Banking Group to exit its asset-protection scheme. It underlines the ongoing fragility of the UK banking sector and means an on-going liability for public finances.

The pound had sunk to €1.1126 in early trading. However, Lloyds, down 1.06p at 108.62p, told the market on Friday morning that was in talks over a possible reduction in the number of toxic assets it might place in the asset scheme, encouraged by 'improving economic conditions'. Yesterday, the Financial Services Authority had set tougher-than-expected capital conditions on Lloyds' potential exit from the scheme.

A lack of appetite for risk helped defensive stocks top the FTSE 100 leaderboard. Consumer goods group Unilever was up 33p at 1,705p and GlaxoSmithKline was 23.5p stronger at 1,200.5p.

Kingfisher, owner of DIY chain B&Q, continued its run, buoyed by broker upgrades. Yesterday, it revealed a 35% rise in first-half profit, benefiting from cost cuts, store revamps and supply chain improvements.

Citigroup, Banc of America-Merrill Lynch, Deutsche Bank and Societe Generale all raised their price targets for the stock with a 'buy' rating. Other retailers felt the benefit with Next up 53p at 1870p. It delivered a third profit upgrade in five months earlier this week.

Mining stocks were meanwhile suffering a second day of falls, led by Lonmin with a 39p decline to 1744p. Tullow Oil gave up some of the week's gains, a result of two oil finds in Africa. It was down 66p at 1,179p.

In the second tier, Babcock International was 5.5p lower at 567p after announcing a deal to buy the commercial arm of the UK Atomic Energy Authority.

Goldman Sachs talked up European aerospace stocks, suggesting a 'strong recovery' in air traffic. Yesterday it added British Airways, down 4.2p at 235.7p after a strong rally on Thursday, to its influential 'Conviction Buy' list. Aero-engine giant Rolls Royce, up 6.7p to 498.3p, was upgraded to 'neutral' from 'sell'. Parts supplier Meggitt, down 3.1p to 224.9p, had its target price raised by more than 10%, to 340p from 300p.

Mayfair-based BlueBay Asset Management tanked 17p to 298p, after it revealed pre-tax profits had fallen by more than half, from £50m to £22.5m. It also said some directors, including the chief financial officer and the operating officer, are selling up to 6.6m shares.

The week ahead

In a very light week for economic releases, the centre for attention will be the minutes of the September meeting of the Bank of England's Monetary Policy Committee (MPC), which are released on Wednesday.

There seems little doubt that interest rates are set to stay down at 0.50% deep into 2010, but questions remain about the future of the Quantitative Easing (QE) programme. How the committee voted, and the tone of the minutes, could offer clues as to how likely it is that QE will be further extended

The British Bankers' Association (BBA) is expected to report on Wednesday that mortgage approvals for house purchases rose to an 18-month high of 41,000 in August from 38,181 in July and a record low of 18,323 in November 2008.

The Office for National Statistics is not expected to make major revisions to its data for business investment in the second quarter (out Friday). The provisional estimate showed business investment plunging by 10.4% quarter-on-quarter and 18.4% year-on-year in the second quarter. This was the sixth consecutive quarterly fall and was well above declines of 7.6% quarter-on-quarter in the first quarter and 0.6% quarter-on-quarter in the fourth quarter of 2008.

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