UK stocks : FTSE 100 adds 0.4 pct
The FTSE 100 closed up 23.75 points, or 0.4 percent, at 5,935.90 but failed to hold above last week's 9-month closing peak of 5,945.85 which was within 20 points of its 2012 high.
"Having recommenced its residency above 5,900, the question is now whether the FTSE 100 can muster the enthusiasm to push towards the next big level of 6,000," Chris Beauchamp, Market Analyst at IG said in a note.
The mid cap FTSE 250 index, however, hit a life-time closing high at 12,293.25 after registering a 0.6 percent gain. U.S. blue chips were 0.6 percent higher by London's close as investors speculated that negotiations between Democrats and Republicans would lead to a deal to avert the fiscal cliff - a package of tax cuts and austerity measures which could push the U.S. economy back into recession.
Republican House Speaker John Boehner said he has hope for a broader deal on the budget talks and was still talking with President Barack Obama.
Gains by miners and energy issues provided half of the FTSE 100 index's points advance on the view that demand for commodities will recover once the U.S. budget standoff is resolved.
"Traders are beginning to come around to the idea that the past month has been more about a steady uptrend in risk asset prices, more so than a period to position against the impending fiscal cliff," said David White, Financials Trader at Spreadex.
"What investors must consider carefully, however, is how the market will react to the news. The extent by which the market jumps higher on any firm deal will likely be in part a function of recent performance, potentially dampening any upside with an already optimistic market," White added.
Away from commodities, G4S gained 2.7 percent with traders citing the impact of a broker upgrade as well as a Financial Times report saying the security firm is set to win a role in implementing the government's contentious and complex changes to welfare payments.
Panmure Gordon raised its rating for G4S to "buy" from "hold" with an increased target price of 295 pence, up from 262 pence, which is broadly in line with the peak seen before the the stock tumbled after the company failed to provide enough guards at the London Olympic Games this year.
Fresh falls by market heavyweight Vodafone, down 1.1 percent, was again the main drag on the blue chips, with the stock extending Monday's 1.7 percent decline and knocking nearly 4 points off the index on concerns about higher costs for mobile operators after the Dutch state raised much more than expected in its auction of fourth generation (4G) frequencies.
"We doubt other remaining European auctions will reach Dutch levels, but to be conservative we have raised our forecast for Vodafone spectrum payments to 9.25 billion pounds (from 8 billion pounds)," over fiscal year 2013 to 2016, Credit Suisse said in a note.
Vodafone also suffered as a defensive stock when investors' risk appetite returned. Defensively-perceived sectors such as drinks and tobacco stocks - which tend to do well even in harsh economic times - were also weak.
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