FTSE preview: Gains on rates hold hint

By Reuters
Updated: 02:58 EDT, 3 May 2011

The FTSE 100 is seen edging higher on Tuesday, catching up with previous gains by global markets after the long holiday weekend, although weaker showings overnight on Wall Street and in Asia are seen limiting the rise.

Watching brief: Traders will eye interest rates this week.

The UK blue chip is seen opening flat to up 8 points, or as much as 0.2%, according to financial bookmakers, having closed just 1.74 points higher on Thursday at 6,069.90 points in light volumes ahead of the Royal Wedding and May bank holidays.

The index gained 2.7% in April but ended below 6,070, the level at which the index retraced from in early in the month.

US stocks slipped back on Monday, after an early emotional, knee-jerk bounce on news of the death of Osama bin Laden gave way to questions around the longevity of the market's recent rally.

Asian shares fell on Tuesday, led by falls in Australian stocks as weaker metals prices dragged on shares of big mining firms, with BHP Billiton down 1.4% and Rio Tinto 1.2%.

High debt levels pose 'massive' economic challenges that would be exacerbated by higher interest rates across Europe and could have 'severe' consequences, Bank of England governor Mervyn King told the European Parliament, The Daily Telegraph said on Tuesday.

House prices in England and Wales fell in April at their fastest annual pace in 18 months and are likely to slip further this year on fears about the economic outlook, Hometrack said on Monday.

The property data firm's monthly survey showed prices were 3.3% down in April compared with a year ago, the biggest decline since October 2009, when Britain was emerging from recession.

Investors will also have April's Markit/CIPS UK manufacturing PMI report and the CBI's distributive trade survey for April, to provide economic direction on Tuesday.

The main domestic focus this week, however, will be on the Bank of England's monthly interest rate decision, due on Thursday, although no change is expected to British monetary policy.

Across the Atlantic, March US factory orders and revised durable goods orders will both be released, but investors' attention will be directed towards Friday's influential April US jobs report.

The Labour Party said it will push for a review of a gas tax increase this week after Centrica said the higher rate may force it to keep a field closed. Finance minister George Osborne raised a supplementary tax on North Sea oil and gas production to 32% from 20% in the March budget.

Centrica, the owner of British Gas, said at the weekend it may not resume output at its South Morecambe gas field after an unspecified period of maintenance work starting Sunday, depending on wholesale gas prices.

The recent North Sea tax increase by the UK government could cost Royal Dutch Shell close to £600m in additional charges next year, the Anglo-Dutch oil group has warned, if oil prices remain above $100 a barrel, The Financial Times said on Friday.

BAE Systems, Europe's biggest defence contractor, said on Monday it had won a £59m contract extension for the maintenance of a Royal Navy patrol vessel in the Falklands.

Rolls-Royce will be able to appoint a foreign chairman or chief executive for the first time in its history under plans to be voted on at its annual meeting this week.

Hungary's OTP bank is in talks to take over the Romanian branch of Royal Bank of Scotland and could make a preliminary offer in about two weeks, daily Ziarul Financiar said.

Barclays is disputing a court order that lays out to which of Lehman Brothers Holdings Inc's assets Barclays is entitled from its rushed 2008 purchase of the company's North American arm.

The London and Toronto stock exchanges started the clock ticking on Friday for the months-long Canadian government review of a $3bn tie-up that has already polarized public opinion.

Warren Buffet said Tesco the world's third-biggest retailer, was foolhardy in its attempts to enter the US grocery market and urged the British retailer to 'look hard' at its struggling American business, The Times said on Tuesday.

New proposals from the Financial Services Authority on potential changes to its remuneration code which prohibit sales of shares by bankers are not as draconian as first feared, according to Jon Terry, a leading pay consultant at PricewaterhouseCoopers, the Guardian said on Tuesday.

There will be updates today from Aberdeen Asset Management and F&C Asset Management.