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Record-Breaking Start to 2013 for UK Shares

WEDNESDAY MARKET UPDATE: The FTSE 250 hits a record high, while FTSE 100 reached best close since April 2011

Holly Cook 2 January, 2013 | 5:54PM

The first trading day of 2013 marked a notable event on the FTSE 100: for the first time since April 2011, the blue-chip index closed above 6,000 points. Having spent the final weeks of 2012 flirting with—but failing to breach—this psychologically-significant level, shares on Wednesday surged through to register a 130-point gain on the day.

By close of play, the FTSE 100 index was up 2.2% at 6,027.

But it wasn’t just the large-caps that were cheered on Wednesday. The FTSE 250 index shrugged off the fact that several key constituents traded ex-dividend to record its highest ever closing level. Mid-cap shares rallied 237 points or 1.9% to push the FTSE 250 to 12,612.

Shares had already started the year in positive mode on the back of some pleasing UK manufacturing data. The Markit/CIPS Manufacturing Purchasing Managers’ Index (PMI) moved back into positive territory in December, rising to a 15-month high of 51.4 from November’s upwardly-revised 49.2. The move above 50 indicates a return to expansion of factory activity and marks a much stronger improvement than had been predicted.

The robust data raised hopes that the UK economy may have narrowly avoided contraction in the final quarter of 2012.

The main thrust for global stock markets, however, was provided by confirmation of a deal to avoid the so-called ‘fiscal cliff’ in the US. Early Wednesday, the House of Representatives passed legislation that prevented most impending tax increases and postponed spending cuts by two months, while raising taxes on the wealthiest 2% of Americans.

“The tax increases alone will not resolve the country’s deficit problems and cuts will have to be made in order to bring expenditures closer in line with revenues,” noted Dan Morris, global strategist at JP Morgan Asset Management.“The next two months will continue to provide political drama, but should be less significant for the markets as any cuts will be implemented only slowly,” Morris added.

Back in London, the short-term solution to fiscal cliff woes was met with market cheer, overshadowing comments from German Chancellor Angela Merkel who said in her New Year address that the European debt crisis was far from over.

On the FTSE, commodities led the UK rally with eight of the 10 top performances coming from the natural resources sector. Evraz (EVR), Glencore (GLEN) and Xstrata (XTA) led the risers, up 7.2%, 7.2% and 6.7%, respectively.

Financials were also in play as investors snapped up risk assets, with Barclays (BARC) and Prudential (PRU) standing out among banks and insurers. Barclays rose 5.0%, while Prudential added 4.2%.

On the flipside, just three blue-chips failed to register gains on Wednesday. Sainsbury (SBRY) was the worst off, down 2.6%, followed by peer Morrison Supermarkets (MRW), odd 2.1%, and in third place was British American Tobacco (BATS), which slipped 1.0%.

Among retailers, John Lewis today announced a jump in December sales, fuelled by strong figures from both the stores and online. Like-for-like sales grew 13% in the five weeks to end-December, with total sales up 14.8%.

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About Author Holly Cook

Holly Cook  is Managing Editor of Morningstar.co.uk