London’s blue chip index was up 56.66 points, or 1.2 percent, at 5,001.10 by 8:51 a.m., having shed more than 3 percent over the past two trading days and tracking sharp gains overnight in the U.S, but off an early day-high of 5,072.68.
“Gains look fragile to say the least. We’ve already seen 60 points come off the index since the open. Investors remained to be convinced that Bernanke’s words or the euro zone action will be enough,” Jimmy Yates, head of equities at CMC Markets, said.
Ben Bernanke’s testimony before Congress gave traders hope of further stimulus as he stated he was ready to do more to sustain U.S. economic growth but tempered expectations by saying there were no immediate plans for a third round of quantitative easing (QE3).
Those words prompted an early bout of short covering in beaten down sectors such as mining, which has lost more than third of its value so far this year, on hopes any extra stimulus would reignite growth and demand in the sector.
Banks, down 32 percent in 2011, rallied too, also helped by European finance ministers agreeing on Tuesday to safeguard their lenders as doubts grew about whether a planned second bailout package for debt-laden Greece would go ahead.
That came just hours after French-Belgian municipal lender Dexia SA became the first European bank to have to be bailed out due to the euro zone’s sovereign debt crisis.
Barclays, whose share fell sharply on Tuesday on euro zone debt concerns and downbeat updates from European peers Deutsche Bank and UBS, rose 5.7 percent.
But Deutsche Bank analyst Jim Reid said it is likely the market will be looking for more action.
“My gut feel is that the European situation still might need to get worse to provoke the type of response the market really wants but such a day is no doubt getting closer.”
Focus will now switch to a meeting of the European Central Bank governing body on Thursday where Goldman Sachs said it expects additional non-conventional measures to be introduced.
“Further liquidity measures would show that the ECB has temporarily abandoned its policy of reducing bank dependence on its funding,” the broker said
“Practically, banks do not have other options and we expect usage to increase sharply. We view this as necessary.”
UBS analysts said the Bank of England looks likely to relaunch its QE programme in the coming weeks, focussed on Gilt purchases, but remained concerned that it shows a lack of understanding of the challenges facing consumers.
“Monetary policy is loose in terms of policy rates but very tight for real-world borrowers – because of regulatory actions.”
DOMESTIC MISS
The squeeze on credit is affecting domestic consumers and that has been reflected in recent updates from London-listed companies like Wolseley and Tesco.
Top retailer Tesco Plc fell 1.6 percent on Wednesday as it posted one of its biggest-ever falls in underlying sales, while rival J Sainsbury Plc reported only modest growth.
The anaemic macro backdrop has forced corporations to look further afield to underpin profits. Despite its fall in underlying sales, Tesco was able to post a 3.7 percent rise in first-half profit as overseas growth, particularly in Asia where profit rose 19 percent, helped offset domestic woes.
Luxury goods group Burberry, which has big exposure in Asia and has recently hit by concerns over a slowdown in China, rallied 2.4 percent.
Mid-cap British youth fashion retailer SuperGroup, however, slumped 23 percent after it said full-year profit would be hit by problems with a new warehouse management system that has left its shops short of its trademark T-shirts.
On the macroeconomic front, UK September Markit/CIPS services PMI data is due at 9:28 a.m., and the final estimate of UK second-quarter GDP is scheduled for release at 9:30 a.m.
Ex-dividend factors took 0.68 point off the FTSE 100 index on Wednesday, with British Land, Inmarsat, Kingfisher and Weir Group all trading without their dividend attractions.
(Editing by Erica Billingham)
Article source: http://www.nytimes.com/reuters/2011/10/04/business/business-us-markets-britain-stocks.html?partner=rss&emc=rss