Robust earnings, lowering of Ukraine tension help FTSE rebound

Tue Mar 4, 2014 11:47am EST

* FTSE 100 up 1.7 pct, recoups Monday's entire losses

* Ease in geopolitical tension triggers relief rally

* Ashtead, Glencore surge on encouraging earnings

By Atul Prakash

LONDON, March 4 (Reuters) - Britain's top share index rebounded from two-week lows on Tuesday, recouping its losses in the previous session, with the perception that tensions between Russia and Ukraine were easing and robust earnings boosting investors' risk appetite.

However, investors remained cautious in placing strong bets on the sustainability of the share rally, given that Russia and the West remained at loggerheads over Russia's actions in Ukraine. Russian President Vladimir Putin gave orders to end an army exercise and said the use of force was a choice of "last resort".

But he added that Russia reserved the right to intervene if there was "lawlessness" in Russian-speaking eastern Ukraine.

"The conflict had the potential to become very ugly as global superpowers were getting involved, but easing tensions have provided investors some confidence to return back and take the market to the level from where yesterday's sell-off started," Marc Kimsey, senior Trader at Accendo Markets, said.

"Although the market's medium-term outlook remains positive, its near-term direction will depend on economic data releases and company earnings."

The blue-chip FTSE 100 index closed 1.7 percent higher at 6,823.77 points after falling 1.5 percent on Monday after Putin's secured parliamentary approval to send Russian forces into Ukraine.

The threat provoked a global equities sell-off on Monday, with investors shunning riskier assets such as equities. However, easing tensions and strong corporate earnings attracted a lot of buyers back into the market.

"Geopolitical issues aside, investors' main focus remains on the performance of the corporate sector. There are some signs of life from this reporting season and we do see the earnings picture improving from here," Robert Parkes, equity strategist, HSBC Securities, said.

Equipment hire group Ashtead spiked 13 percent to the top of FTSE 100 risers' list after increasing its third-quarter profits by 51 percent and raising its full-year profit target. Natural resources firm Glencore Xstrata rose 1.7 percent on forecast-beating profit.

Lex van Dam, hedge fund manager at Hampstead Capital, said he believed the market's short-term direction would be higher because world powers had nothing to gain from a conflict over Ukraine and so the crisis was not likely to get worse.

Analysts stressed that the market swings caused by the tensions in Ukraine should be seen in the context of the recent market rally, which has seen the UK benchmark index bounce nearly 6 percent off lows hit at the start of February.

That has left the FTSE 100 trading on a 12-month forward price/earnings ratio of 13.6 times, against 12.9 times at the beginning of February, Thomson Reuters Datastream shows.

"Equity valuations are back up at the top of their recent range so when you get a left-field shock the impact is more dramatic than it would have been if we hadn't had that run," Peel Hunt equity strategist Ian Williams said.

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