Wednesday August 20, 12:19 PM
FTSE up as commods rise,banks still under pressure
LONDON, Aug 20 (Reuters) - Britain's leading share index extended early gains to climb 0.7 percent by midday on Wednesday as commodities tracked firm energy and precious metal prices, while investors received a fillip from strong Asian markets.
At 1034 GMT the FTSE 100 <.FTSE> was 35.4 points higher at 5,355.8 after falling 2.4 percent on Tuesday. The UK's bluechip index is now down over 17 percent for the year to date.
Asian markets <.MIAS00000PUS> offered positive sentiment to European markets, after recovering from a two-year low as Chinese shares surged on hopes Beijing would introduce a stimulus package to jump-start growth.
Positive Asian sentiment and firm precious metal prices helped buoy miners, while U.S. crude <CLc1> rose to above $114 a barrel to support heavyweight oil companies.
BP <BP.L>, BG Group (LSE: BG.L - news) <BG.L> and Royal Dutch Shell (LSE: RDSB.L - news) <RDSa.L> climbed 1.6-2.2 percent.
Oil explorer Tullow Oil (Dublin: TQW.IR - news) <TLW.L> jumped 6.9 percent after positive comments in research notes. One dealer cited a report from UBS (Virt-X: UBSN.VX - news) which raised Tullow to 'buy' from 'neutral' based on valuation. UBS added that further exploration success could also make Tullow an M&A target.
Among miners, Rio Tinto (LSE: RIO.L - news) <RIO.L>, BHP Billiton (LSE: BLT.L - news) <BLT.L>, Xstrata <XTA.L>, Kazakhmys (LSE: KAZ.L - news) <KAZ.L> and Anglo American (LSE: AAL.L - news) <AAL.L> tacked on 1.6-6.5 percent.
'It seems to be the same sort of suspects,' Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers. 'Bit of strength from the mining stocks...in the oils as well. There is also something on the Asian front.'
'There were concerns that after the Olympic games some of the Chinese economy might start to drop off the cliff slightly but it looks very much like that isn't going to be the case.'
'Underneath all that, trading volumes are very thin. The market is reasonably directionless, so you do get those slight swings in volatility.'
On the macro front, Bank of England meeting minutes showed that policymakers were split three ways in August for a second month running, with one voting to hike interest rates, another to cut but the remaining seven deciding to keep borrowing costs steady at 5 percent. The FTSE 100 was unaffected by the minutes.
BANKS WORRIES PERSIST
Banking shares remained volatile, dipping in and out of negative territory, after recent heavy losses. Royal Bank of Scotland (LSE: 91ID.L - news) <RBS.L> was down 1.3 percent, Lloyds TSB <LLOY.L> lost 0.1 percent, while HBOS <HBOS.L>, Standard Chartered (LSE: STAN.L - news) <STAN.L> and HSBC (LSE: HSBA.L - news) <HSBA.L> added between 0.2 and 1.9 percent.
Barclays (LSE: BARC.L - news) <BARC.L> slipped 3.5 percent after President Bob Diamond said the bank would consider buying a U.S. wealth management company but was highly unlikely to bid for an investment bank, the Financial Times reported.
The bank (TBHS - news) was also among several stocks on the downside to trade ex-dividend. Others included BT Group (LSE: BT-A.L - news) <BT.L>, HSBC <HSBA.L>, Pearson (LSE: PSON.L - news) <PSON.L> and Scottish & Southern Energy <SSE.L>.
'The FTSE is showing continued volatility with mining and gold stocks pushing up and the banking sector dragging down,' said Mark Priest, a senior trader at TradIndex.
'There is continued nervousness about (former International Monetary Fund chief economist) Kenneth Rogoff's comments that we are going to see a 'big one...a whopper' go under in the U.S. banking sector.'
J Sainsbury <SBRY.L> dipped 3.2 percent after JP Morgan cut its rating on the retailer to 'neutral' from 'overweight'.
BAE Systems (LSE: AP16.L - news) <BAES.L> lost 1.4 percent after the Times (1832.HK - news) reported that the UK defence ministry had agreed a 2 billion pound contract to secure the future of Royal Ordnance, which is owned by Europe's biggest defence company.
Among high-flying midcaps, Michael Page International <MPI.L> advanced 7.5 percent following comments from the recruitment group's boss that a sale of the company to Adecco <ADEN.VX> could be possible at 600 pence per share or more. [ID:nLK637699]
(Additional reporting by Dominic Lau and Patrizia Kokot; Editing by David Cowell)
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