Babcock leads Britain's FTSE higher on nuclear contract win

Mon Mar 31, 2014 7:46am EDT

* FTSE 100 up 0.2 pct, but on course for quarterly drop

* Babcock nearly recoups last week's losses

* Insurers rally after regulator's "blunder"

* Miners extend gains on China stimulus optimism

By Tricia Wright

LONDON, March 31 (Reuters) - Britain's top shares rose on Monday, led by Babcock on the back of a nuclear contract win, and underpinned by appetite for downtrodden insurers and resurgent miners.

Babcock advanced 4.5 percent, the top FTSE 100 riser by some margin in brisk trade, as the engineering contractor and its U.S. peer Fluor were named preferred bidders for a 14-year, 7 billion pound ($11.7 billion) contract to manage the decommissioning of Britain's nuclear sites.

The share price gains saw Babcock almost recoup the losses seen last week when it announced a big rights issue to fund the acquisition of helicopter firm Avincis.

"Positivity in the stock from what I call 'gold plated government contracts' (on account of both prestige and value) should extend the share price to my six-month target of at least 1,550 pence," Jordan Hiscott, senior trader at Gekko Global Markets, said. The shares are currently trading at 1,350 pence.

Trading volume in Babcock was almost three times its 90-day daily average around mid session, compared with turnover of around one third of the daily average for the UK benchmark as a whole.

Insurers rallied, with Resolution, Aviva and Legal & General all up 0.8-1.8 percent, having slumped in the previous session.

The life insurance sector fell as much as 7.1 percent on Friday on concerns about the extent of a leaked investigation by a UK regulator, before regaining some of its losses after the regulator said the investigation would be limited.

The shares closed 2.6 percent lower on Friday and the recovery continued on Monday.

"The insurance sector is seeing a bit of a relief rally. The clarification on Friday afternoon helped the insurance sector pull back from the lows," David Madden, analyst at IG, said.

"For as long as this is hanging (over) the insurance sector, there will be concerns though, even if in the short term we see bargain hunting."

A 1.7 percent rise in Resolution still left it more than 5 percent shy of its closing price on Thursday.

MINER STRENGTH

Miners rose 0.7 percent to take their rally since a March 20 low to nearly 6 percent.

After a string of weaker data reports from China, expectations are building over possible intervention by the government to boost demand in the world's largest metals consumer. The Chinese Premier said last week China could act to support infrastructure investment.

But the sector traded off its session highs, with copper down slightly after hitting a two-week high earlier on Monday.

"A bit of a bounce in the sector this morning just on hopes that commodity prices will get a fillip from the Chinese stimulus - although actually metals prices haven't bounced as much as we might have expected which I think is why the markets are generally just tailing off now," Matt Basi, head of sales trading at CMC Markets, said.

"Until we've got further clarity on what's going to happen... it's probably wise for people just to be a bit more cautious and take a bit of money off the table."

Rio Tinto led the miners higher with a 2.1 percent gain, as Credit Suisse reiterated the stock on its "focus" list.

"Potential for shareholder returns at Rio Tinto is larger and could be sooner than any of its peer group including BHP," analysts at Credit Suisse wrote in a note.

By 1119 GMT, the FTSE 100 index was up 12.85 points, or 0.2 percent, at 6,628.43 points, having hit a two-week high earlier on Monday.

However, the index was still down almost 2 percent for the year on the last day of the first quarter, and set for its first quarterly fall since June last year.

Concerns over the economic impact of ongoing tensions between Russia and the West over Ukraine, as well as weaker data from the United States and China, hit stocks in the early part of the year.

"If you look at the sell-off we've had compared to all the negative news we have, we would have seen a much worse sell-off if there wasn't underlying strength in this market to start with," IG's Madden said.

($1 = 0.6011 British Pounds) (Additional reporting by Alistair Smout; Editing by Andrew Heavens)

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