Britain's FTSE rises again on hopes of US budget deal

Mon Jan 21, 2013 4:21am EST

Related Topics

* FTSE 100 up 0.2 percent

* Hopes of US budget deal lifts miners, financials

* FTSE 100 approaching "bold" resistance - analysts

* Pearson, Meggitt, Diageo dip on earnings worries

By David Brett

LONDON, Jan 21 (Reuters) - Britain's top share index notched up further gains early on Monday, in tandem with a late rise on Wall Street in the previous session, helped by talk of a short-term deal to break the budget impasse in the United States.

London's FTSE 100 was up 14.87 points, or 0.2 percent at 6,169.87 by 0847 GMT, remaining at four-and-a-half year highs.

Trade, however, was expected to be quiet with heavy snow causing havoc for City workers in London and the United States closed for Martin Luther King junior day.

In the United States, Republicans said the House would consider a bill to raise the U.S. debt ceiling enough to allow the country to pay its bills for another three months, which would buy time for the Democratic-controlled Senate to pass a budget plan that shrinks the federal deficit.

"A firm close on Wall Street (on Friday) and hopes of a deal being struck in the U.S. is helping push the FTSE (100) higher," a London-based trader at a large investment bank said.

"But trade is so thin with markets closed in the States, no important data and snowy conditions keeping a lot of the City at home, so we could start to suffer from a lack of direction later on," he said.

The FTSE 100 is also fast approaching some "bold" resistance according to technical analysts at Futures Techs, who suggest the index faces a hurdle to get over at the 6,181 level.

Traditional "risk-on" sectors, however, led the way early on Monday with miners higher. A budget deal in the United States could underpin the global economy, further lifting demand expectations in the sector.

Financials added their weight to gains too with insurer Admiral Group leading the risers on the UK's FTSE 100, hoisted 5.3 percent higher in light trade by Goldman Sachs' upgrade to "buy". The investment bank also added it to its conviction list.

Softening premium rates and regulatory intervention have seen the shares underperform the over the past 3-6 months. However, Goldman sees potential for claims inflation to decline faster than the market anticipates improving its profitability outlook.

There were signs of caution creeping back into the market as defensives featured heavily too on the gainers list with the likes of utilities SSE and Severn Trent up more than 1.3 percent and drugmaker GlaxoSmithKline up 1.3 percent.

Earnings remain a worry for investors with price-to-earnings multiples on the FTSE 100 looking stretched, having re-rated to post-credit crisis highs.

European companies start reporting this week. They are expected to post a 1 percent year-on-year drop in fourth-quarter earnings, on average, according to Thomson Reuters StarMine.

British education and media group Pearson fell 3.4 percent after warning it expected tough market conditions and structural industry change to continue into 2013 after it endured weak trading in the key fourth quarter selling season.

Drinks firm Diageo dipped 1.6 percent as UBS cut its recommendation on the company to "neutral" from "buy" and reduced its earnings forecasts for 2014 by 3 percent.

Luxury goods firm Burberry shed 2.4 percent after Swiss peer Richemont, down 6 percent, issued a cautious outlook.

And Meggitt shed 2.9 percent on concerns over the potential loss of earnings as a probe into faults which grounded Boeing Co's 787 Dreamliner focused on Arizona-based Securaplane Technologies Inc, a unit of Meggit, which makes a charger for batteries used on the aircraft. (Written by David Brett; Editing by Toby Chopra)

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