Banks buoyed Britain's FTSE 100 on Thursday as Goldman Sachs analysts said the take-up by lenders of ECB loans should be seen as an important positive and market bulls attempted to push the index through important technical levels.
London's blue chips <.FTSE> closed up 67.23 points, or 1.3 percent, at 5,456.97, although the index failed to push on from an earlier high of 5,469.03 in volumes which were just 61 percent of their 90-day average.
Bill McNamara, a technical analyst at Charles Stanley said a close above the 50-day moving average -- around 5,450 -- could give investors confidence that this reversal off the lows is something more than just fleeting.
It is not inconceivable that the FTSE could run back up to test its short-term downtrend again before the year is out, which would take it up to 5590 or so, he said.
The FTSE 100 is down 0.9 percent in choppy trade in a month which on average benefits from the Santa rally, with investors still paralysed by concerns over the economic outlook.
Commenting on recent market trends Jerome Booth, head of research at Ashmore Investment Management, said: Volatility is high. Banks are momentum trading, whipping up client sentiment...in a bid to increase turnover in conditions of wide bid/offer spreads.
He said investors should steer clear of the momentum trading currently driving markets and focus on true value -- when asset prices are clearly out of line with the riskiness of the asset.
When investors are sucked into ephemeral momentum trading, when others remain on the side-lines like rabbits in the headlights, when myopia and fear drive investment decisions, value goes begging.
For now the momentum trade was back on with the banks <.FTNMX8350> and other riskier assets suchs as miners <.FTNMX1770> -- sectors which have sorely underperformed in 2011 on the back of global debt and growth concerns -- higher, as central banks continue to takes steps to inject stimulus to boost growth and market confidence.
Goldman Sachs said the large take-up by lenders of the European Central Bank's long-term refinancing operation on Wednesday is an important positive, underpinning banks during the sovereign storm and it expects the amount to grow further still in the February auction.
The broker said UK-listed Lloyds Banking Group
Insurers also saw strong support on hopes that the euro zone debt situation could be eased by the injection of liquidity from the ECB, with Old Mutual
Traders, however, said like shoppers dashing for last-minute Christmas gifts, much of Thursday's moves can be put down to investors and fund managers balancing their portfolios with cheap stocks ahead of the festive break.
Miners, which have lost around 30 percent of their value in 2011, were higher with Kazakhmys
Among individual gainers, International Consolidated Airlines Group (IAG)
The FTSE was also supported by economic data in the United States which bolstered optimism that the world's largest economy was gaining momentum.
With employment a key component to the economic recovery, new claims for jobless benefits hit a 3-1/2 year low last week, although U.S. third-quarter growth was cut.
Britain revised up third-quarter GDP growth slightly to 0.6 percent but trimmed its second-quarter estimate to show the economy stagnated between April and June.
But with the risk trade back on, it was the perceived defensive assets which dominated the downside with the likes of Compass Group
(Editing by David Cowell)