FTSE climbs ahead of ECB injection

By @ibtimes on

Top shares rose on Tuesday, buoyed by strength from banks ahead of the European Central Bank's upcoming liquidity injection, which analysts argued could jolt the FTSE 100 out of its recent trading range.

Banks, big fallers in the previous session, recovered their poise, with the sector in focus ahead of the ECB's second longer-term refinancing operation (LTRO) on Wednesday.

The enormous injection of liquidity provided by the ECB's first LTRO in late December, which removed concerns about a liquidity crunch in Europe, is widely considered to have helped fuel the rally in risk assets seen since the start of the year.

Analysts will focus on the size of the gross allotment as well as net new liquidity. A poll showed 30 euro money market traders expect the ECB to allot 500 billion euros, with forecasts ranging from 200 billion (169.7 billion pounds) to 750 billion.

Peter Dixon, economist at Commerzbank, said that whatever the amount, it will be a win-win situation, capable of driving equity markets higher still.

If it's a number below market expectations, it basically tells you that banks feel sufficiently confident about future prospects, he said.

If it comes in above then it's likely to have a similar effect to what we saw in December -- lots of extra liquidity in the banking system and a positive to the risk-on trade.

Silverwind Securities trader Darren Sinden said: If we get a decent take up of say 600 billion euros plus then that will help solve many of short-term issues for European banks.

It may well be the positive catalyst that the market needs to break 6,000 and push on ... It's not a long-term cure but will certainly keep the doctor away, he said.

Other analysts argued that it is economic growth and corporate profitability that will determine the sustainability of the equity market rally.

Data on Monday showing further improvement in the U.S. housing market helped boost the demand picture for the miners, another significant driver of the FTSE 100's gains.

The UK benchmark <.FTSE> was up 9.58 points, or 0.2 percent, at 5,925.13 by 12:43 p.m., stuck within a trading range seen since February 3.

MIXED BAG

A busy day for corporate earnings produced a mixed bag.

House builder Persimmon saw its shares jump 12.7 percent, topping the midcap leader board, after accompanying news of a 1.9 billion pounds return of surplus cash to shareholders with an upbeat outlook.

Trading volumes in Persimmon were robust, at nearly five times the 90-day daily average.

Sector peer Taylor Wimpey rose 6.2 percent while Barratt added 3.2 percent, fuelling outperformance in the FTSE 250 <.FTMC>, with the index up 0.5 percent.

Whitbread shed 1.6 percent, another top FTSE 100 faller, as the hotels and leisure group reported slowing fourth-quarter sales growth.

Whitbread was the second-most heavily traded UK blue-chip stock, with volumes at one and a half times its 90-day daily average.

Concerns over the recent rise in oil prices continued to cast a shadow on the market.

While oil prices slipped towards $123 a barrel on Tuesday, prices have risen sharply, with prices having jumped to near 10-month highs last week on tensions over Iran.

The things that are driving this oil price at the moment are still unresolved and could get a lot worse ... We're seeing it in petrol prices and we feel the effect straight away, said David Morrison, market strategist at GFT Global.

Analysts reckon that for every $10 rise in the oil price, that's 0.2 percent off global GDP, and estimates for global GDP are only about 2.8 percent for this year, so if the price goes up by $20 or $30 then that's a real concern, he said.

Heavyweight energy stocks tracked the oil price lower on Tuesday, led down by a 0.6 percent fall in BG Group .

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