FTSE gains; defense stocks boosted by new UK govt

By Tricia Wright

LONDON (BestGrowthStock) – Aerospace and defense stocks helped drive Britain’s top share index higher on Wednesday with investors relieved over the formation of a new British government.

The FTSE 100 (.FTSE: ) index closed up 49.24 points, or 0.9 percent, at 5,383.45, having fallen 1 percent on Tuesday.

Rolls Royce (RR.L: ), Cobham (COB.L: ) and BAE Systems (BAES.L: ) helped boost the blue chips, up 1.7-5.4 percent, as investors reacted positively to the composition of a coalition government and appointment of Liam Fox as the new defense minister.

“Liam Fox is hard line on defense and he will fight hard for his corner,” said independent defense analyst Paul Beaver.

Outsourcing firm Capita (CPI.L: ) and peer Serco (SRP.L: ), up 4.8 and 3.7 percent, also benefited from the greater perceived stability provided by the coalition government.

Compass (CPG.L: ), the world’s biggest caterer, gained 5.3 percent after the firm posted solid first-half results.

“One of the themes that’s been left behind over the last week or so is the ongoing strength of quarterly earnings…” said Richard Hunter, head of UK equities at Hargreaves Lansdown, particularly in the United States, but also in the UK.

“There may well be an element of realignment there now that another uncertainty has been removed with the coalition government being formed.”

Travel firm TUI Travel (TT.L: ) was the top blue chip riser, up 6.5 percent, while peer Thomas Cook (TCG.L: ), which reports first-half results on Thursday, rose 6 percent as European flights got back to normal after the ash cloud which caused difficulties over the Atlantic and the Iberian Peninsula dispersed on Tuesday night.

LIBERAL PLANS

Banks were mixed. State-backed banks fell, with traders citing concerns over Liberal plans to break up banks or impose some form of bank levy, with Royal Bank of Scotland (RBS.L: ) and Lloyds Banking Group (LLOY.L: ) the top two FTSE 100 fallers, off 3.2 and 1.3 percent.

But HSBC (HSBA.L: ) rose 0.8 percent, while Barclays (BARC.L: ), which traded ex-dividend on Wednesday, climbed 1 percent.

Standard Chartered (STAN.L: ) added 0.1 percent. A source said the emerging markets focused bank has made an approach about buying a majority stake in South African bank Nedbank (NEDJ.J: ), in which Old Mutual (OML.L: ) holds a big stake.

Old Mutual shares rose 4 percent, despite trading ex-dividend, with the financials group also due to issue a trading update on Thursday.

Fellow insurer Legal & General (LGEN.L: ) benefited from a revival of takeover interest, adding 2.8 percent.

Investors were relieved to see Spain joining the euro zone’s austerity bandwagon on Wednesday in response to a widening debt crisis as the European Commission sought an unprecedented right of prior review of national budgets.

There was some relief also when Bank of England forecasts showed British inflation will fall below its 2 percent target even if interest rates stay at their current record low and the new government does not put in place extra fiscal tightening.

The number of Britons claiming unemployment benefit fell more than expected in April but the number out of work on the wider ILO measure rose to its highest since 1994, official data showed.

Energy stocks were out of favor as oil fell after a U.S. government report showed a larger than expected rise in crude stockpiles in the world’s top consumer.

BP (BP.L: ) shed 0.7 percent, while Royal Dutch Shell (RDSa.L: ) dropped 0.3 percent.

Oil explorer Tullow Oil, however, added 5 percent after it said it expected formal approval from the Ugandan government in the next few weeks for its acquisition there, and that oil production from Ghana was also on schedule.

Unilever (ULVR.L: ), Fresnillo (FRES.L: ), Sage Group (SGE.L: ), and Whitbread (WTB.L: ) were among companies losing payout attractions on Wednesday.

Stock Market News

(Editing by Mike Nesbit)

FTSE gains; defense stocks boosted by new UK govt