The FTSE 100 hit a 2-1/2-month closing high on Wednesday, with defensive stocks doing well as investors awaited the outcome of a European Union summit to resolve the two-year-old sovereign debt crisis.
Investors also rewarded companies reporting strong figures in a patchy quarterly results season, with BG Group
The FTSE <.FTSE> closed up 27.70 points, or 0.5 percent, at 5,553.24 in a volatile session, swinging from a low of 5,498.51 to a high of 5,576.63.
Volumes were thin, at just 75 percent of the average over the last 90 days, indicating investors' caution ahead of the summit starting at 6:30 p.m..
The financial markets have been buoyed by a pledge from French and German leaders earlier this month that a decisive plan, including a programme to recapitalise euro-zone banks, would be unveiled after the summit, with the UK index gaining about 12 percent in the last two weeks.
However, the region's policymakers have not yet agreed on the scale of Greek debt writedowns and how much the rescue fund needs to be leveraged to prevent other highly indebted countries, such as Italy and Spain, from being sucked into the crisis.
We are struggling even to get to what percent of haircut we are going to see in Greece. The (rescue fund) has hardly been boosted. Bank recapitalisation is implausibly a small amount, said Philip Lawlor, strategist at investment management company Smith & Williamson.
This is just over-promising and under-delivering, left, right and centre.
Banks <.FTNMX8350>, which have been hurt by the ongoing euro-zone debt crisis, slipped 0.3 percent, though defensive stocks were in demand.
Among them was British American Tobacco
Peer Imperial Tobacco
Lawlor suggested investors stick with high-quality, cashflow generating stocks.
Among FTSE 100 companies, Man Group
However, companies that offer the highest 12-month forward dividend cover -- a measure of their ability to pay its expected dividend out of estimated earnings and cash flow -- were Vedanta Resources
Other defensive stocks to gain on Wednesday were drugmakers and mobile phone operator Vodafone
The pace of deterioration in FTSE 100 companies' earnings momentum -- analysts' upgrades minus downgrades as a percentage of total estimates -- fell to -10.8 percent from -8 percent the previous month, according to Thomson Reuters I/B/E/S.
We are now five months into the earnings downgrade cycle. We suspect earnings still have further to fall, and believe 2012 (consensus) earnings are now most at risk, UBS strategists said in a note, adding that they expected UK company earnings to grow by an average of 3 percent next year, well below the consensus.
FTSE 100 companies are expected to post average year-on-year earnings growth of 15.9 percent this year and 10.7 percent for 2012. At the start of the year, analysts were expecting average earnings growth of 20.2 percent for 2011 and 11.4 percent next year.