The FTSE 100 Index pushed to a new two-and-a-half year high on Tuesday, buoyed by reports that Europe’s bailout fund may be enlarged.
The Footsie rallied more than 1% or 70.7 points to close at 6056.4 as banking and mining stocks recovered from Monday’s losses.
The market was boosted by talk that finance ministers from some of the richest nations in Europe had agreed to pump extra money into European Stability Fund at a meeting in Brussels. The reports helped reassure investors that the eurozone would be able to deal with another debt crisis.
Fears surrounding the ongoing debt woes on the continent have troubled European markets for months, as uncertainty mounts over the future of other key economies, including Portugal and Spain. There were also successful bond auctions in Spain and Greece that added to confidence about the eurozone.
Barclays, which is heavily exposed to the Iberian peninsula, moved slightly ahead by 1.2p to 307.8p, while HSBC added 5.8p at 709.3p. But Lloyds lost earlier gains, slipping 0.3p to 67.8p. The euro strengthened on the back of the improved sentiment, and was up against the pound at 1.19. But the pound was up against the dollar at 1.60 after official figures revealed UK inflation surged to 3.7% in December.
Fashion house Burberry topped the risers’ board after it delivered another forecast-beating trading update. The retailer surged more than 5%, up 56p to 1115p, after underlying revenues rose 27% in the third quarter and it guided the market towards full-year profits at the top end of City expectations.
The rebounding price of many commodities helped miners recover from Monday’s losses, which were sparked by uncertainty around China’s plans for monetary tightening. Kazakhmys was up 49p at 1665p and Eurasian Natural Resources was ahead 29p at 1101p.
On a shortened fallers board, GlaxoSmithKline fell after Monday’s announcement that the cost of settling legal disputes over controversial diabetes drug Avandia will hit a record £2.2 billion and wipe out profits for the fourth quarter. Shares fell 23.5p to 1181.5p, a drop of nearly 2%.
Among other trading updates, FTSE 250 Index stock Taylor Wimpey rose 8% after it confirmed takeover approaches for its US division and said it continued to trade in-line with expectations in the UK during the second half of 2010. Shares rose 2.9p to 38.1p. Taylor Wimpey’s update spurred on the housebuilding sector, with Bovis Homes up 17.2p at 458.4p and Persimmon up 24p at 459.7p.
The top Footsie risers were Burberry up 56p at 1115p, ARM Holdings ahead 22p at 536.5p, Petrofac up 67p at 1685p, and BG Group ahead 52.5p at 1366p. The top Footsie fallers were Essar Energy down 70.7p at 6056.4p, GlaxoSmithKline off 24.5p at 533p, Rexam down 4.3p at 345.2p and African Barrick Gold off 4p at 560p.