FTSE 100 ends near record peak on Fed, Rolls-Royce

Thu Jun 19, 2014 11:42am EDT

* FTSE 100 index finishes 0.4 percent higher

* Index trades ends than 2 percent below record high

* Rolls-Royce surges on share buy-back plan

By Atul Prakash

LONDON, June 19 (Reuters) - Britain's top share index climbed on Thursday to trade just below a record high, helped by a rally in aircraft engines maker Rolls-Royce and after the U.S. Federal Reserve reassured investors over monetary policy.

The London market tracked other major stock indexes after the Fed said the U.S. economy was making progress. It hinted at a slightly faster pace of interest-rate increases starting next year, but suggested rates in the long run would be lower than previously indicated.

Rolls-Royce surged 8.1 percent to 1,090 pence to add the most points to the FTSE, as analysts welcomed its billion pound ($1.69 billion) share buy-back plan.

"There's a lot of support for Rolls-Royce coming in around the 10 pound level, and the buy-back will add more demand for the stock," Dafydd Davies, senior trader at London-based Prime Wealth Group, said.

Rolls-Royce said it was on track to return to earnings growth next year, reassuring investors whose confidence was shaken by a cut in profit guidance in February and an engine order cancellation this month. The stock had lost 17 percent of its value over the past six months.

"We remain positive on the company, which provides exposure to the theme of growing air travel, and we would use the weakness in the stock so far this year as a buying opportunity," Jonathan Jackson, head of equities at Killik & Co, said.

The blue-chip FTSE 100 ended 0.4 percent higher at 6,808.11 points, not far from a record 6,950.60 set in 1999.

However, some traders remained cautious near-term on the FTSE 100, which has lacked the momentum to hit new peaks unlike the U.S. S&P 500 index and Germany's DAX.

"The market is likely to witness a sideways trend in the summer months," Commerzbank strategist Peter Dixon said. "It's a market where stock picking has become more important than trend following," he said.

The FTSE 100 is up about 1 percent since the start of 2014, lagging gains of 5 percent on the DAX and 6 percent on the S&P.

Some traders are looking to see if the FTSE 100 index can get past its previous failures to break the 6,900 point level before betting on the index getting to 7,000 points.

"The Fed's dovish stance has allowed many of the recent underperformers to bounce back ... Even so, the index still has to break 6,880 to avoid the impression that we are still struggling to find a catalyst for a sustained move higher for the FTSE 100," IG analyst Chris Beauchamp said in a note. ($1 = 0.5904 British pounds) (Additional reporting by Sudip Kar-Gupta; Editing by Louise Ireland)

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