Bloomberg News

U.K. Stocks Rally on Spain Funding Talk; Lloyds, Rio Rise

October 16, 2012

U.K. stocks rallied the most in two week, led by banks and mining companies, as two German lawmakers said the country is open to Spain’s seeking a credit line and U.S. industrial production topped economist forecasts.

Lloyds Banking Group Plc (LLOY) and Royal Bank of Scotland Group Plc (RBS) led a gauge of British lenders to the highest in more than a year. Rio Tinto Group rose 2.9 percent after reporting an increase in iron-ore output and as base metals climbed in London. Bellway (BWY) Plc surged to the highest since 2007 after posting a 58 percent jump in annual profit.

The FTSE 100 Index (UKX) advanced 64.93 points, or 1.1 percent, to 5,870.54 at the close in London, the biggest gain since Oct. 1. The gauge has rallied 5.4 percent this year as European Central Bank policy makers approved an unlimited bond-buying program and the Federal Reserve started a third round of asset purchases. The broader FTSE All-Share Index increased 1.1 percent today and Ireland’s ISEQ Index climbed 0.8 percent.

“Shares traded higher today on hopes that Spain are close to requesting a bailout,” said James Hughes, chief market analyst at Alpari U.K. Ltd. in London. “There were some reports that suggest it may come as early as next week. With the European Union summit on Thursday and Friday that now looks increasingly unlikely.”

Bank stocks rallied in Europe after two German lawmakers said Germany is open to Spain seeking a precautionary credit line from the euro-area rescue fund, signaling a reversal of German Finance Minister Wolfgang Schaeuble’s public position.

German Comments

The comments by Michael Meister, a deputy caucus leader of Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, indicate a rolling back of German resistance to a full sovereign bailout for Spain. Schaeuble cautioned Spain against seeking aid on top of its bank bailout as recently as last month.

Spain is prepared to seek financial aid from the euro area and is waiting for a decision on how the request would affect Italy, the Financial Times reported, citing a senior official in Spain’s economy ministry it didn’t name. EU leaders convene for a summit in Brussels on Oct. 18-19.

An index of U.K. banks gained 2.5 percent to the highest level since July 2011. Lloyds rallied 6.1 percent to 42.76 pence, RBS advanced 4.4 percent to 280 pence and Barclays Plc (BARC) increased 3.9 percent to 246.1 pence.

U.S. Economy

Stocks extended gains after data from the Fed showed U.S. industrial production climbed 0.4 percent in September, paring some of August’s 1.4 percent slump. That beat the median economist estimate for a 0.2 percent increase.

A gauge of mining companies increased 1.7 percent as copper rebounded from a one-month low. Lead and tin also advanced on the London Metal Exchange.

Rio Tinto gained 2.9 percent to 3,061 pence. The company reported a 6 percent increase in third-quarter iron-ore output to 52.6 million metric tons, beating the mean analyst estimate of 50.65 million tons. Iron-ore output from Australia’s Pilbara region rose to a quarterly record.

Petropavlovsk Plc (POG) rallied 3.1 percent to 440 pence after the miner of gold in Russia reported a 39 percent gain in third- quarter gold production to 219,400 an ounce.

Kazakhmys Plc (KAZ) rose 2.8 percent to 709 pence, Vedanta Resources Plc (VED) increased 2.5 percent to 1,099 pence, Antofagasta Plc (ANTO) added 1.8 percent to 1,279 pence.

Bellway gained 3.2 percent to 980 pence, the highest since November 2007. The homebuilder reported a 58 percent increase in annual net income to 79.3 million pounds ($128 million) after selling more properties at higher prices. The company is also planning to raise its dividend by 59 percent.

GKN Sinks

GKN Plc (GKN) fell 3.4 percent to 204.8 pence after the the maker of car drive shafts warned that weakening demand in some European automotive and industrial markets will affect fourth- quarter profit.

“Macroeconomic conditions have deteriorated in recent weeks and some softening in order books is now evident,” GKN said today. “The fourth quarter is anticipated to show the usual seasonal improvement, although the softening markets are expected to have some impact.”

Third-quarter pretax profit of 99 million pounds was little changed from a year-earlier result that was adjusted for a one- time charge. Sales rose 8.4 percent to 1.6 billion pounds.

Bodycote Plc rallied 4.1 percent to 359.4 pence after saying trading between July 1 and Sept 30 was in line with expectations. The shares slumped 15 percent last week after peers Cookson Group Plc and Morgan Crucible Co. both said their full-year performance will fall short of targets.

Record Plc (REC) surged 30 percent to 24.5 pence, the largest jump since April 20. The currency manager said its assets under management increased almost 9 percent in the third quarter, boosted by new clients.

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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