Mellow Yellen underpins FTSE 100 gains

Fri Nov 15, 2013 11:58am EST

* FTSE 100 up 0.4 pct

* Commodity-related stocks rally as Yellen fuels QE fire

* Vedanta falls after results

* IAG succumbs to profit-taking after lifting guidance

By David Brett

LONDON, Nov 15 (Reuters) - Britain's top shares rose on Friday, bolstered by the prospect of continued U.S. monetary stimulus and technical support, with energy stocks and miners posting the biggest gains.

London's blue chip index gained 27.31 points, or 0.4 percent, to 6,693.44, after the Federal Reserve's chairman-designate Janet Yellen defended the bank's quantitative easing programme (QE), dispelling concerns about an early reduction of the asset purchases.

"Profit-taking will be minimal on the FTSE while it holds above the 6,650 support level on a daily closing basis. However, if it breaks this level then I expect to see a sharp pullback towards the 200-day average, currently around 6,490," Fawad Razaqzada, technical analyst at Gain Capital, said.

With risk appetite boosted by Yellen's comments, cyclical stocks such as miners and oils found favour.

London-based mining conglomerate Vedanta Resources, however, was the standout laggard in the sector, tumbling 6.7 percent after reporting a 14 percent fall in first-half core earnings.

Traders said there was some concern about Vedanta's debt levels, increase in working capital, the capex at Cairn India, and the fact that the restructure/consolidation is not complete.

QE BOOST

The United States' QE programme remains a major backbone for the UK's benchmark index, which has risen nearly 20 percent in the past year as investors have moved out of safe bonds and into higher-yielding assets, such as stocks.

That, however, has left the index trading on a 12-month forward price/earnings ratio of 12.7 times, above its 10-year average of 12, Thomson Reuters Datastream shows. Some traders saw scope for a sell-off.

"The market seems to have gotten a little ahead of itself based on Yellen with bullish sentiment at a high, but the internal's getting weaker. Taking a little off the table is my preferred strategy right now," Lex van Dam, hedge fund manager at Hampstead Capital, said.

There was profit taking in British Airways owner IAG , which fell 2.9 percent despite raising its 2015 profit target. The stock has doubled in value in 2013, making it the best performer on the FTSE 100.

Utility group Centrica fell 0.6 percent, extending falls for a second day as a string of analysts cut their target prices for the stock after a profit warning on Thursday.

"On one hand, profits are being eroded by competitive pressures in energy retail and power generation; on the other the ... rhetoric in the media is hostile due to perceived profiteering," JPMorgan said in a note.

"Until the public and political climate becomes more constructive, we see limited share price upside for either Centrica or (peer) SSE."

Shares in SSE slipped 0.1 percent.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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