UK Shares Edge Higher Despite Spain Scepticism

The FTSE 100 rallied in late deals after another seesaw session amid concern surrounding a bailout of Spanish banks

Holly Cook 12 June, 2012 | 6:22PM
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Despite ongoing scepticism surrounding the proposed Spanish bailout, UK shares made a last ditch attempt to repair some of the damage on Tuesday, rallying late in the day to close 0.8% firmer on the FTSE 100.

The blue-chip index closed 41 points higher at 5,474, while Spain’s IBEX 35 added 0.1% to 6,523 and the German DAX rose 0.3% to settle at 6,161.

After Monday’s seesaw session in which the FTSE 100 index saw a near-2% gain wiped out in closing trades, Tuesday’s session was only moderately more stable. After an initial uptick, market values fell back into the red following the release of UK manufacturing data, which showed production deteriorated from 0.9% growth in March to a contraction of 0.7% in April, according to the Office for National Statistics.

Market sentiment showed resilience, however, pushing UK shares back above breakeven for the middle leg of the trading day, until Wall Street opened for business and investor caution once again steered shares south.

The main cause of concern at present as the latest chapter in the eurozone debacle, in which Spain has secured the promise of a banking sector bailout but few appear to be convinced that such a move is anything more than a sticky plaster.

“In general the move is a near-term positive for Spanish banks,” commented Stefan Isaacs, a bond fund manager at M&G. “But this does not reduce the need for significant reform of the country’s financial system,” he added. “The Spanish government continues to underestimate the scale of the problems it faces ... and this is likely to further undermine investor confidence in the country,” Isaacs said.

Spanish government bond yields today rose to the highest levels seen since the introduction of the eurozone 13 years ago, clearly indicating fears surrounding the immediate and long-term implications of such a bailout.

Given such uncertainty, it was no surprise that among the top performers on the FTSE 100 on Tuesday were several ‘safe haven proxies’. Precious metals miners Randgold Resources (RRS) and Fresnillo (FRES) climbed 3.0% and 2.4% higher, respectively. Defensive positions were also apparent, with tobacco producers British American Tobacco (BATS) and Imperial Tobacco (IMT) and utilities Centrica (CNA) and Scottish & Southern (SSE) also attracting buyers. Each of the four stocks gained between 1.2% and 1.5%.

‘Riskier’ assets were also in demand, however, with Lloyds Banking Group (LLOY) and Standard Chartered (STAN) up 2.3% and 2.2%. Lloyds today announced it is selling its remittance business in Japan for an undisclosed sum.

Share performances were less optimistic among the mid caps, where the FTSE 250 fell back 97 points or 0.9% to 10,561. Amongst the stand-out casualties was RPC Group (RPC), which plunged 8.0 after its full-year results failed to please.

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Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites

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