FTSE 100 closed at its highest level this year on Tuesday as banks and miners rallied after encouraging economic data out of Europe and the U.S., although volumes were weak and traders said the market could be nearing its top.
London's blue chip index <.FTSE> closed up 63.16 points, or 1.1 percent at 5,955.91, but volumes were thin with the FTSE 100 trading 83 percent of a subdued 90-day average.
Investors' appetite was given a boost by German ZEW sentiment data which beat expectations by a large margin, and U.S. retail sales posted their largest gain in five months in February.
The data fuelled Wall Street gains, where the Dow Jones industrial average <.DJI> is trading at a near four-year high. The U.S. Federal reserve is seen keeping interest rates on hold in a statement due at 6.15 p.m., but questions remained over whether the Fed will keep the door ajar to further easing.
Orrin Sharp-Pierson, equity strategist at BNP Paribas, said equities are beginning to look expensive despite the recent rebound in global industrial activity.
He said the data likely staves off further earnings downgrades for equities, but at the current level it doesn't suggest meaningful upgrades either, which is what would be needed to support further re-ratings.
Banking <.FTNM8350> and mining <.FTNMX1770> stocks were the main drivers of FTSE 100 gains, as risk appetite improved.
Part state-owned British banks Lloyds
Citigroup repeated its buy rating on Lloyds. But, highlighting uncertainty surrounding the UK bank and the sector, cut its earnings forecasts for 2012 and 2013 by up to 18 percent. Citi also kept its neutral rating on Royal Bank of Scotland.
The sector has been blighted by concerns over exposure to Europe's debt crisis. But as concerns over Greece defaulting have dissipated, lessening the chance of a full blown financial crisis, volatiltiy <.VFTSE> -- a gauge of investor fear -- has fallen.
(Volatility indexes) are pricing in a slow and steady increase equity markets, without any further shocks. However, given the last 5 years of turmoil, it would be a surprise if such a Panglossian (optimistic) future existed, a London-based trader said.
IAG AVOID STRIKES
Results helped Prudential
Peer Standard Life
Shore Capital said despite valuation support and Standard Life's dividend yield attraction it preferred annuity companies such as Legal & General
Legal & General added 3.4 percent ahead of results due out on Wednesday.
A record increase in goods exports to non-EU countries driven in part by car exports to the United States, Russia and China meant Britain's goods trade deficit widened less than expected in January.
British house prices fell at their slowest pace since July 2010 last month, and surveyors expect prices to stabilise in the coming months as the economic outlook brightens, the Royal Institution of Chartered Surveyors said.
Housebuilders pushed higher, led by Barratt Development
On the downside, Antofagasta
And Security services firm G4S
The quarterly earnings season has served up a mixed bag. As of Monday, of the companies that have reported 51 percent have beaten or met expectations, according to Thomson Reuters Starmine data.
(Written by David Brett; Editing by Elaine Hardcastle)