Bloomberg News

U.K. Stocks Climb to Two-Week High as Banks, Mining Shares Rally

August 30, 2011

Aug. 30 (Bloomberg) -- U.K. stocks rallied, sending the benchmark FTSE 100 Index to a near two-week high, as banks and commodity companies climbed in London trading.

Royal Bank of Scotland Group Plc and Barclays Plc surged more than 6 percent as Deutsche Bank AG recommended the lenders. Xstrata Plc and Rio Tinto Group rose with commodity prices, both advancing more than 4 percent. Prudential Plc led insurers higher as damage from Hurricane Irene in the U.S. was less severe than estimated.

The FTSE 100 jumped 2.7 percent to 5,268.66 at the 4:30 p.m. close in London, after a public holiday yesterday. All but six companies climbed. The broader FTSE All-Share Index rose 2.6 percent today, while Ireland’s ISEQ Index added 1 percent.

The U.K. has “played catch up with other European bourses after its extended bank holiday weekend,” said Angus Campbell, head of sales at Capital Spreads in London. “The banks, which have suffered terrible losses of late, were in demand.”

U.K. stocks paced yesterday’s rally in European shares after a U.S. report showed that consumer spending climbed in the world’s largest economy last month more than economists had forecast.

The FTSE 100 has still slumped 9.4 percent so far in August and is heading for its biggest monthly selloff since October 2008 as concern about the global economic recovery wiped more than $400 billion off the value of U.K. shares.

RBS, Barclays Jump

RBS rallied 8 percent to 23.6 pence as Deutsche Bank raised its recommendation for Britain’s biggest government-owned lender to “buy” from “hold,” saying a 34 percent selloff so far this month is “overdone.”

Analysts expect “strong management will continue to deliver value” in the bank’s core area, while managing the risk in its non-core assets.

Barclays jumped 6.7 percent to 165.4 pence as Deutsche Bank named Britain’s second-largest bank by assets its “top pick” and reiterated its “buy” recommendation. Analysts reduced their price estimate for the shares to 320 pence from 379 pence. That is still almost double the current share price.

Xstrata climbed 4.7 percent to 1,025.5 pence, Rio Tinto increased 4.3 percent to 3,673.5 pence and BHP Billiton Ltd., the world’s biggest mining company, advanced 4.3 percent to 2,042.5 pence.

Metal Prices Increase

Copper advanced for a fifth day on the London Metal Exchange amid speculation that workers at Freeport-McMoRan Copper & Gold Inc.’s Grasberg mine may strike after talks on wages ended with no agreement. The market was closed yesterday for a public holiday.

Indonesia’s Grasberg mine has the world’s largest recoverable reserves of copper and the biggest gold reserves, according to Freeport’s website.

Prudential, the U.K.’s biggest insurer by market value, climbed 4.4 percent to 598 pence, while Aviva Plc advanced 5.8 percent to 329.7 pence and Old Mutual Plc gained 4.7 percent to 118.3 pence.

European insurers rallied yesterday after Hurricane Irene’s estimated cost to insurers fell to about $2.6 billion in the U.S. as the storm lost strength en route to New York, according to Kinetic Analysis Corp., a firm that predicts the effects of disasters. That compares with a projection last week of almost $14 billion.

Bovis, Persimmon

Bovis Homes Group Plc rallied 5.3 percent to 369.5 pence, leading construction companies higher, after the smallest publicly traded U.K. homebuilder by volume said first-half profit more than doubled to 5.9 million pounds ($9.6 million) as operating margin rose.

Analysts at RBS, Numis Securities Ltd. and Panmure Gordon all raised their recommendation for the shares to “buy.”

Taylor Wimpey Plc, the second biggest U.K. homebuilder by volume, increased 4.3 percent to 31.76 pence and Barratt Developments Plc jumped 8.3 percent to 78.9 pence.

Wolseley Plc also advanced, jumping 4.6 percent to 1,526 pence as Jefferies Group Inc. upgraded the world’s largest supplier of heating and plumbing products to “buy” from “hold.” Travis Perkins Plc gained 4.3 percent to 792.5 pence.

“Following the recent collapse in shares prices, the majority of the companies in this sector are, in our view, substantially undervalued,” Jefferies wrote in a report to clients dated today. “Our mid-cycle based price targets are on average 56 percent above the current share prices in the U.K.”

Hammerson Plc rose 4.6 percent to 406.3 pence as JPMorgan Chase & Co. named the company one of its “top picks” in the European real-estate industry. Analysts also raised their recommendation for Segro Plc and Derwent London Plc to “overweight.” The shares climbed 2.8 percent to 254.4 pence and 2 percent to 1,550 pence, respectively.

--Editor: Will Hadfield

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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