Bloomberg News

U.K.’s FTSE 100 Advances Above 6,000 on U.S. Budget Deal

January 02, 2013

U.K. stocks advanced, with the benchmark FTSE 100 Index (UKX) racing past the 6,000 mark for the first time since July 2011, as U.S. lawmakers passed a bill that prevented most scheduled tax increases from coming into effect.

Barclays Plc (BARC) and Lloyds Banking Group Plc (LLOY) climbed at least 3.5 percent. Rio Tinto Group and BHP Billiton Ltd. (BHP) pushed mining shares higher. Tesco Plc (TSCO) gained 2 percent after Deutsche Bank AG asked investors to buy the shares before the retailer releases its Christmas-trading update on Jan. 10.

The FTSE 100 Index surged 129.56 points, or 2.2 percent, to 6,027.37 at the close in London, the highest level since July 7, 2011. The benchmark gauge rallied 5.8 percent in 2012 as the European Central Bank announced an unlimited bond-buying plan and the Federal Reserve expanded asset purchases. The broader FTSE All-Share Index gained 2.1 percent today. Ireland’s ISEQ Index added 1.6 percent, rising to the highest since April 2010.

“Investors are happy for now, as U.S. politicians reached a budget deal and averted automatic tax increases,” said Manish Singh, who helps manage $2 billion as head of investment at Crossbridge Capital in London. “There might be another Washington showdown in a few weeks over the debt ceiling, and plenty of volatility for short-term traders. But ignoring that, the trend line is still looking up for 2013.”

The U.S. House of Representatives passed the budget legislation with a 257-167 vote just after 11 p.m. in Washington yesterday. President Barack Obama said he will sign the bill into law. The Senate approved the proposals 89-8 in the early hours of Jan. 1.

Tax Cuts

The bill will reinstate tax cuts that expired Dec. 31 on incomes of as much as $400,000 for individuals and $450,000 for married couples. Top earners will be taxed at 39.6 percent, up from 35 percent last year.

The budget accord will also delay until mid-February the automatic spending cuts that were scheduled to start this month. The deal ends a payroll-tax cut of two percentage points, reducing paychecks for U.S. workers with immediate effect.

Manufacturing in the world’s biggest economy expanded more than projected in December. The Institute for Supply Management’s factory index rose to 50.7 from 49.5 in November, beating the 50.4 average forecast of economists in a Bloomberg survey.

In the U.K., manufacturing expanded in December for the first time in eight months, a report showed. The Markit Economics purchase managers’ index climbed to 51.4 from 49.2 in November, according to a release by the London-based institution. A reading above 50 signals expansion. Economists on average had forecast a reading of 49.1.

Banks, Miners

An index of London-listed banks surged to the highest in 19 months. Barclays advanced 5 percent to 275.6 pence, while Lloyds gained 3.7 percent to 49.69 pence. HSBC Holdings Plc (HSBA), Europe’s largest lender, rallied 2.9 percent to 665.7 pence and Standard Chartered Plc (STAN) rose 2.3 percent to 1,610 pence.

A gauge of mining stocks in the FTSE 350 Index surged 5 percent, the most in more than three months.

Rio Tinto, the world’s second-largest mining company, jumped 5.1 percent to 3,691 pence. BHP Billiton, the biggest, added 3.7 percent to 2,208.5 pence.

Tesco Rating

Tesco advanced 2 percent to 342.75 pence after Deutsche Bank analysts James Collins and Sally Ronald recommended buying the shares. Britain’s biggest grocer will next week issue a statement on its performance in the six weeks to Jan. 6.

“We expect Tesco to have done well relative to competitors, against last year’s weak relative performance,” they wrote in a note today.

BP Plc (BP/) increased 1.5 percent to 431.3 pence after Europe’s second-largest oil company said it started production in the Skarv field in the Norwegian Sea. Output from the field will reach 165,000 barrels of oil equivalent per day by the end of the year, BP said.

Lamprell Plc (LAM) jumped 20 percent to 113.25 pence, the most since the company sold shares to the public in October 2006. The oil-rig engineer said it has received waivers from lenders on financial covenants that were due to be tested on Dec. 31. The company’s working capital has improved “significantly” and net cash position at the end of 2012 was around $100 million, according to the statement.

J Sainsbury Plc (SBRY) slid 2.6 percent to 336 pence for the biggest drop on the FTSE 100 as Oriel Securities analysts led by Jonathan Pritchard said the shares look “vulnerable” in the short term.

WM Morrison Supermarkets Plc (MRW) lost 2.1 percent to 257.4 pence as Jefferies International Ltd. lowered its share-price target to 310 pence from 330 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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