Banks boost FTSE after ICB report; earnings eyed

By Tricia Wright

LONDON (Reuters) – Britain’s top shares rose on Monday, with banks firmer on relief about a report from the Independent Commission on Banking, but some investors were wary as the index nears peak levels ahead of corporate earnings.

By 1058 GMT, the FTSE 100 (.FTSE: Quote, Profile, Research) was up 10.61 points, or 0.2 percent, at 6,066.36, retreating from its highest closing level since mid-February on Friday, when it firmed 0.8 percent to end at 6,055.75.

Observers said bullish momentum could begin to slow, with inflationary concerns preying on investors’ minds ahead of upcoming corporate earnings.

“The 6,100 (level) should continue to act as a significant resistance level in the short term and with earnings season beginning in earnest expectations will be on future guidance as opposed to profit levels for the previous quarter,” Michael Hewson, market analyst at CMC Markets, said.

“I think there is an element of caution about future guidance levels and investors will be paying particular attention to this, in the face of rising global interest rates and inflationary pressures,” he said.

The second-quarter earnings season kicks off with results from Dow component Alcoa Inc (AA.N: Quote, Profile, Research) which reports after the U.S. market close on Monday.

BANKS BUOYANT

Banks firmed on relief after recommendations in a report by the UK’s Independent Commission on Banking were not as severe as many had feared. Barclays (BARC.L: Quote, Profile, Research) and Royal Bank of Scotland (RBS.L: Quote, Profile, Research) rose 3.2 and 2.1 percent respectively, with some analysts saying they did best from the report.

The ICB recommended that banks should form separate subsidiaries for retail and trading operations, helping protect ordinary savers.

Espirito Santo said that, relative to expectations, the universal banks such as Barclays and RBS fared the best from the report as retail banking ring-fencing looks less onerous than it could have been.

The broker said Lloyds Banking Group (LLOY.L: Quote, Profile, Research), which managed a 0.1-percent rise, fared “somewhat negatively, with the unquantified prospect of further branch divestitures.”

Miners firmed as gold hit record highs and silver a 31-year peak, lifted by elevated oil prices and a weaker dollar, with sentiment surrounding the sector also aided by stronger than expected trade data from top consumer China.

BHP Billiton (BLT.L: Quote, Profile, Research) was the top sector performer, climbing 2.2 percent, boosted as Credit Suisse lifted its rating on the stock to “outperform” from “neutral,” reflecting a cheap valuation and strong earnings momentum from oil and bulks.

BHP played down speculation it was in talks to acquire a cornerstone stake that could be worth $10.3 billion (A$9.8 billion) in Australia’s largest oil and gas firm, Woodside Petroleum (WPL.AX: Quote, Profile, Research), from Royal Dutch Shell (RDSa.L: Quote, Profile, Research).

Nomura, in a note, said it remains of the view that M&A activity will provide a positive catalyst for European equities in 2011 against a supportive fundamental backdrop, citing low interest rates, strong balance sheets and low equity multiples.

Among individual movers, GKN (GKN.L: Quote, Profile, Research) climbed 2.2 percent after the plane and car parts maker issued a strong first-quarter trading update, prompting Investec Securities to repeat its “buy” rating on the stock.

(Editing by Jon Loades-Carter)

Banks boost FTSE after ICB report; earnings eyed