FTSE swings higher on UK GDP relief, corporate earnings

Wed Apr 27, 2011 7:22am EDT

* FTSE up 0.1 pct

* UK GDP up 0.5 percent in the first quarter 2011

* Aggrekko, engineers rise after results

By David Brett

LONDON, April 27 (Reuters) - Britain's FTSE 100 rose on Wednesday, as the UK's fragile recovery in the first quarter raised hopes of cheaper money for longer, fuelling demand for equities.

Britain's gross domestic product expanded by 0.5 percent between January and March, in line with forecasts, making it unlikely the UK central bank will raise rates in the short term. [ID:nLDE73Q0SJ]

Markets are not fully pricing in the first hike until November. BOEWATCH

"It's definitely held back expectations of a rate rise," David Jones, chief market strategist at IG Index, said.

"Maybe there was a little bit of nervousness ahead of the data that it wouldn't come in as expected and there has been a bit of a relief rally after that."

By 1137 GMT, the blue-chip FTSE 100 .FTSE swung into positive territory, up 5.47 points or 0.1 percent at 6,074.83, having hit a 9-week closing high on Tuesday, albeit in light volumes, after the four-day Easter weekend and ahead of another four-day holiday weekend starting with the Royal Wedding on Friday.

The FTSE is now testing resistance levels of around 6,070, the level the index retraced from in early April, but IG's Jones said the FTSE would need to break through the year's high at around 6,105 before fresh momentum comes into the market.

UK corporate earnings dominated the top movers on Britain's blue chip index. Aggreko (AGGK.L), up 5.3 percent, hit a record high after the temporary power supplier says it expected trading profit to be slightly ahead of 2010. [ID:nLDE73Q0E5]

Engineers GKN (GKN.L), Weir Group (WEIR.L) and IMI (IMI.L) added up to 3 percent, with the sector boosted by results from mid-cap peer Bodycote (BOY.L), which jumped 12 percent.

"Momentum is clearly with Bodycote (which trades at an 18 percent discount to peers) and we believe that the shares deserve at least a sector rating," Numis said in a note. It raised its recommendation to "add" from "hold".

BP (BP.L) gained 1.5 percent, in a firmer energy sector .FTNMX0530, after results and also after a report that its spat with its partners in its Russian venture TNK-BP TNBP.MM could be nearing a resolution. [ID:nLDE73Q058] [ID: nLDE73Q0Y8]

AB FOODS SQUEEZED

Associated British Foods (ABF.L) fell 6.1 percent as the company warned of flat annual earnings as squeezed consumer spending hit margins at its discount fashion retail chain Primark. [ID:nLDE73P1O4]

Before this session, of the 17 FTSE 100 companies due to report in the current quarterly earnings season, 18 percent have already done so with 67 percent missing estimates, and with an average negative surprise of 1.1 percent, according to Thomson Reuters data.

Barclays (BARC.L) shed 4.8 percent, in a weaker banking sector .FTNMX8350, as the British bank missed first quarter earnings forecasts. [ID:nLDE73P1UB]

Banks remain hamstrung by Europe's sovereign crisis, with Morgan Stanley saying in a note that whilst funding pressures have abated somewhat as banks' recapitalisations have been announced, sovereign news flow continues to overhang bank funding costs.

Elsewhere, ARM Holdings (ARM.L) returned some its previous session's gains, falling 1.5 percent despite the British chip designer posting a better-than-expected 34 percent rise in first quarter earnings, as investors booked profits. [ID:nLDE73Q09Z]

ARM was one five companies to trade ex-dividend, which knocked 5.64 points off the FTSE 100 index. Centrica (CNA.L), Fresnillo (FRES.L), Tesco (TSCO.L) and Smith & Nephew (SN.L) also went ex-dividend.

Artificial hip and knees maker Smith & Nephew (SN.L) also slid 3.1 percent after U.S. firm Johnson & Johnson (JNJ.N) confirmed it is to buy Swiss medical devices maker Synthes Inc SYST.VX for 19 billion Swiss francs.

The U.S. company was previously seen as a potential suitor for Smith & Nephew. [ID:nL3E7FR0K9]

U.S. stock index futures pointed to a slightly higher open on Wall Street on Wednesday, where later on the Federal Reserve Chairman Ben Bernanke will face the press in the first regularly scheduled news conference by a Fed chairman in the central bank's 97-year history.

Traders are speculating whether the Fed's QE2 programme could soon be wound up, reducing the supply of cheap money. (Editing by Jane Merriman)

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