Bloomberg News

U.K. Stocks Surge as Central Banks Ease Funding for Lenders

November 30, 2011

Nov. 30 (Bloomberg) -- U.K. stocks surged the most in eight weeks after the Federal Reserve and five central banks took coordinated action to ease funding for European lenders and as China cut its reserve ratio for banks.

Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc surged more than 7 percent in London trading. Mining companies rallied with metal prices as the People’s Bank of China reduced its reserve ratio for the first time since 2008.

The benchmark FTSE 100 Index gained 3.2 percent to 5,505.42 at the close in London. The gauge earlier fell as much as 1.2 percent after Standard & Poor’s cut the credit ratings of some of the world’s largest banks. The FTSE All-Share Index rose 3.1 percent and Ireland’s ISEQ Index climbed 3.9 percent.

“The market has ripped higher after the central banks’ coordinated move to boost liquidity,” said Brett Watkins, a sales trader with XConnect Trading Ltd. in London. “This is undoubtedly a huge positive as it buys the market time, but it does not solve the debt problem and the deleveraging that needs to occur.”

The central banks of the U.S., the euro area, Canada, the U.K., Japan and Switzerland all agreed to cut the cost of providing dollar funding via swap arrangements and agreed to make other currencies available as needed.

China said earlier today it will cut the reserve- requirement ratio for its lenders by 0.5 percentage points from Dec. 5. A clampdown on property speculation has added to the risk of a deeper slowdown in the world’s second-largest economy.

U.K. Lenders Surge

A gauge of U.K. banks extended gains to 3.3 percent as the three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, eased to 131 basis points below the euro interbank offered rate. The measure earlier reached a three-year high of 163.

Lloyds jumped 7.1 percent to 24.83 pence, RBS climbed 7.5 percent to 20.99 pence and Barclays Plc increased 6.7 percent to 180.25 pence.

Commodity stocks rallied as metal prices rebounded on the London Metal Exchange and crude oil climbed to a two-week high. Kazakhmys Plc gained 6.5 percent to 925 pence and Antofagasta Plc increased 9.2 percent to 1,184 pence. Royal Dutch Shell Plc paced a rally in energy companies, climbing 3.9 percent to 2,224 pence.

Elsewhere, Sage Group Plc advanced 5.5 percent to 290.1 pence after the U.K.’s biggest software maker reported a 4 percent increase in full-year “organic” revenue and also raised its dividend 25 percent.

Shaftesbury, Cairn Energy

Shaftesbury Plc rallied 4.1 percent to 501.5 pence after the second-best performing U.K. real-estate investment trust this year reported a 30 percent jump in full-year profit as it increased rents at properties in London’s West End district.

Cairn Energy Plc paced declining shares, falling 1 percent to 272.3 pence after the oil explorer ended its drilling program off the coast of Greenland after failing to make a commercial discovery.

Cairn said it plugged and abandoned the AT7-1 well, which had encountered traces of oil and gas, as well as the AT2-1 well, the last of five drilled this year that reported only “minor hydrocarbon shows.”

Panmure Gordon & Co. tumbled 19 percent to 11 pence after the company said Chief Executive Officer Tim Linacre will step down as the British stockbroker expects to report a second-half loss.

Linacre, 52, will remain in the position he’s held for the past six years until a successor is identified and will then remain on the board, the company said.

Mouchel Group Plc tumbled 30 percent to 12.25 pence after the company said its outlook for 2012 has been curtailed by U.K. government spending cuts on public services. The U.K. road- maintenance company also increased its credit lines to 180 million pounds ($283 million) and was granted amendments by its lenders to stave off a covenant breach. The shares yesterday rallied 46 percent.

--Editors: Srinivasan Sivabalan, 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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