FTSE edges higher to end near 14-year peak

Fri May 16, 2014 12:31pm EDT

* FTSE 100 index finishes 0.2 percent higher

* Supermarkets advance, bid rumours around Wm Morrison

* Coca-Cola HBC falls as results disappoint

* House builders under pressure, Barratt down

By Atul Prakash

LONDON, May 16 (Reuters) - Britain's top equity index edged higher to finish near a 14-year high on Friday, with supermarkets advancing on a defensives-led bounce and bid speculation boosting Wm Morrison.

Sainsbury climbed 4.5 percent, outpacing a 3.8 percent gain by Morrisons and a 2.6 percent rise in Tesco shares . The companies were the top three gainers on the blue-chip FTSE 100 index.

"Supermarkets are the best performers, with vague chatter surrounding a possible bid for Morrisons," said Michael Hewson, chief market analyst at CMC Markets.

Morrison's advance was helped by mounting speculation that a U.S.-led private equity consortium was weighing a bid for the company, traders said. The Daily Mail's market report noted talk of a possible 6.4 billion pound ($10.8 billion), or 275 pence a share, cash offer. Morrison declined to comment.

The sector built on gains seen in the previous session when there was a strong bias towards defensive stocks. These often lag when markets rise, supporting a view that the good times will not roll for long.

Frothy valuations are stopping investors from aggressively putting money to work in equities. The FTSE 100 is trading on a 12-month forward price/earnings ratio of 13.7 times, against its 10-year average of 11.7 times, Thomson Reuters Datastream shows.

"The recent defensive rotation in equity markets underscores our view that the wider risk-on rally now looks tired," said Graham Bishop, senior equity strategist at Exane BNP Paribas.

The FTSE 100 rose 0.2 percent to 6,855.81 points to finish near this week's 14-year high. It fell 0.6 percent in the previous session, taking its cue from Wall Street, which sold off after results from Wal-Mart disappointed and as small-cap shares extended their retreat.

The UK small cap index was down 0.8 percent, while the mid-cap index fell 1.4 percent, underperforming the wider stock market.

The FTSE 100's gains were capped by losses at bottler Coca-Cola HBC after disappointing results, and as UK homebuilders fell on concerns that authorities may intervene to prevent a housing market bubble.

Coca-Cola HBC, the world's No. 2 bottler of Coca-Cola drinks, fell 4.6 percent, the worst performing stock on the FTSE 100 after a bigger-than-expected currency-related quarterly loss in its Russian and Ukrainian operations.

Home builders fell on growing expectations that the Bank of England may try to stop a housing bubble by tightening standards for mortgage lending. Speculation is rife that the central bank's Financial Policy Committee will toughen lending rules when it meets on June 17.

Barratt Developments, the country's biggest housebuilder by volume, fell 3.8 percent, while Persimmon was down 1 percent.

"Investors are watching house prices, which have risen quickly. The Bank of England is clearly monitoring the situation and could take some action to stop the situation turning into a bubble," said Keith Bowman, analyst at Hargreaves Lansdown.

Britain's housing market has made a swift recovery from the global financial crisis, with prices up about 10 percent in the past 12 months.

Mining shares fell on growth concerns in countries such as China, the world's biggest metals consumer. The UK mining index fell 1.6 percent, led by a 2.9 percent drop in Anglo American shares. (Additonal reporting by Tricia Wright; Editing by Mark Trevelyan)

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