FTSE Rallies on Stronger Banks and Oil

London shares turned into positive territory as heavily-weighted mining and oil stocks were bought on speculation commodity prices were due another run higher after several sessions of losses.

Meanwhile, banks turned higher prompted by last week’s better-than-expected results from US groups Citigroup, JPMorgan and Wells Fargo.

By midday, the FTSE 100 stood 32 points, or 0.6 per cent, higher at 5,408.2 – more than 20 points above the level that marks official bear market territory for the senior index. A bear market is reached when an index falls 20 per cent from its most recent peak.

The banking sector overcame early weakness, which had been prompted by poor results from a rights issue by HBOS.

The high street bank and mortgage lender had hoped to raise up to £4bn with the issue, but fell well short of the mark after receiving valid acceptances for only 8.29 per cent of the new shares offered.

This followed a turbulent few weeks where the company’s share price fell below the rights issue price of 275p. Indeed, at 11am on Friday, the deadline for shareholders to take up the issue, the shares had stood at 269p.

Although the shares closed on Friday at 282p, they were back down 2.6 per cent to 274¾p on Monday morning, proving a stubborn obstacle for the issue’s underwriters, who now have two days to offload the unsold ”rump” in the market.

The mood was brighter elsewhere in the sector, however, with Barclays, which is relying on Qatari and Asian investors to provide the bulk of its £4.5bn capital raising after only a fifth of existing shareholders took up the offer of new shares, up 1.4 per cent to 324¼p.

Oil prices had their biggest weekly fall on record last week, with London’s front-month Brent crude contract down 10.6 per cent over the five days, as funds liquidated positions to take profits in the wake of turbulent equity market behaviour.

On Monday, however, the main oil groups were higher as crude prices rallied. BP rose 1.1 per cent to 526¾p, while Cairn Energy rose 3.1 per cent to £26.41 and Royal Dutch Shell added 1.3 per cent to £18.43.

Mining shares were similarly bought on hopes of a rally for metals prices. BHP Billiton rose 4.3 per cent to £16.68 and FTSE newcomer Ferrexpo, the Ukrainian iron ore miner, rose 6.3 per cent to 287p.

Insurers fell on fears a costly bidding war could emerge after reports Santander had put its insurance unit up for sale for about €4bn (£3.19bn).

Separately, Panmure cut its price target on Aviva to 803 from 854p, saying it expected the market slowdown ”will have had, and will continue to have a negative impact” on the stock. The shares fell 3.4 per cent to 520½p.

Autonomy, the search software group, rose 2.8 per cent to £10.36 after revealing an 85 per cent rise in second-quarter pre-tax profit, while the company’s operating margin hit a new record of 40 per cent.

FTSE Rallies on Stronger Banks and Oil

TradingEconomics.com, Financial Times
7/21/2008 7:55:06 AM