Bloomberg News

U.K. Stocks Are Little Changed Amid Stimulus Boost

July 05, 2012

U.K. stocks closed little changed as an increase in Bank of England’s bond-purchase target and interest-rate cuts in Europe and China offset concern that economic risks persist in the euro area.

Xstrata Plc (XTA) gained 3.1 percent, leading mining shares higher. GKN Plc (GKN), a U.K. maker of components for Airbus SAS jetliners, surged the most in three years after agreeing to buy Volvo AB’s aircraft-engine unit. Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc fell.

The FTSE 100 Index (UKX) rose 0.1 percent to 5,692.63 in London. The gauge fluctuated between advance and decline at least 12 times. The broader FTSE All-Share Index climbed less than 0.1 percent today, while Ireland’s ISEQ Index slid 0.1 percent.

“Shares in London did have something of a post-lunch wobble,” said David Jones, chief market strategist at IG Index in London. “It’s testament to how positive sentiment is that much of these losses have been clawed back.”

The equity benchmark has advanced 2.2 percent so far this week as measures of manufacturing from China to the euro area beat forecasts and speculation grew that central banks will take further steps to stimulate growth.

The Bank of England’s Monetary Policy Committee led by Governor Mervyn King raised its asset-purchase target by 50 billion pounds ($78 billion) to 375 billion pounds. Thirty out of 41 economists had forecast the move in a Bloomberg News survey. Policy makers also left their benchmark rate at a record low of 0.5 percent today.

China, ECB

The People’s Bank of China reduced the one-year deposit rate by 25 basis points and the one-year lending rate by 31 basis points.

The European Central Bank lowered its main refinancing rate and the deposit rate by 25 basis points to 0.75 percent and zero respectively.

Stocks earlier erased gains after ECB President Mario Draghi said some “downside risks” to the euro-area economic outlook have materialized. “Economic growth in the euro area continues to remain weak with heightened uncertainty weighing on both confidence and sentiment.”

“The global economy is in a very poor state, and investors are starting to realize that monetary policy is reaching its limits,” said Michael Hewson, a market analyst at CMC Markets U.K. Plc in London. “There’s only so much central banks can do when the problems within the global economy are structural.”

U.S. Payrolls

Companies in the U.S. added 176,000 workers in June, according to figures from Roseland, New Jersey-based ADP Employer Services. The median forecast of economists surveyed by Bloomberg News called for a 100,000 advance.

A gauge of mining shares listed on the FTSE 350 Index advanced 0.8 percent today.

Xstrata climbed 3.1 percent to 845.8 pence after obtaining permission to adjourn a shareholder meeting due July 12 to approve its merger with Glencore International Plc. (GLEN) Xstrata is changing the terms of management retention awards in response to shareholder demands.

Glencore added 1.1 percent to 315.6 pence and Kazakhmys Plc climbed 0.9 percent to 758 pence.

GKN surged 13 percent to 211 pence, the most since May 2009, after saying it will pay 633 million pounds to buy Volvo’s aircraft-engine unit to tap demand for lightweight composite parts and narrow the gap with competitors such as Safran SA.

Dunelm Group Plc (DNLM) gained 3.7 percent to 531 pence after saying it sees full-year pretax profit at about 96 million pounds, higher than analysts’ estimate of 92 million pounds.

Tate & Lyle Plc (TATE) rose 1.6 percent to 666.5 pence after Exane BNP Paribas raised its recommendation on the shares to outperform, the equivalent of buy, from neutral.

A gauge of banking shares listed on the FTSE 350 Index retreated 0.4 percent.

RBS lost 3.4 percent to 207.2 pence, while Lloyds slid 2.7 percent to 30.82 pence.

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

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


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