FTSE edges higher, TUI boosted by merger plan

Fri Jun 27, 2014 10:36am EDT

Related Topics

* FTSE 100 index rises 0.2 percent

* TUI Travel gains, plans to merge with TUI AG

* Housebuilders aided by bullish HSBC note

* Rolls-Royce up; Airbus set to revamp A330 with the firm

By Tricia Wright

LONDON, June 27 (Reuters) - Britain's top shares rose on Friday, led by TUI Travel on plans for a merger, while housebuilders drew further support on less draconian curbs on home loans by the Bank of England than some had expected.

TUI Travel, Europe's biggest tour operator, and majority owner TUI AG will come together in an all-share deal, the two said, ending months of speculation. Their shares rose 4.1 percent and 2.9 percent respectively.

Housebuilders also notched up strong gains. Barratt Developments jumped 3.4 percent, second-top FTSE 100 riser, and Persimmon climbed 1.7 percent, whilst Redrow , up 5.4 percent, and Taylor Wimpey, 2.9 percent firmer, were among the best mid-cap risers.

Estate agency Foxtons was the top FTSE 250 gainer, up 6 percent.

The housebuilders' gains, which built on a steep climb the previous session fuelled by the Bank of England announcement, came as HSBC flagged up a "golden" entry opportunity into the sector.

The Thomson Reuters UK Homebuilding index has fallen some 11 percent since a late February peak.

"Yesterday's news gives welcome visibility and should boost the market's confidence in our base case and target prices which project up to 66 percent potential returns across the sector," HSBC analysts said in a note.

Bellway, Crest Nicholson and Taylor Wimpey are its top picks.

While the milder-than-expected measures prompted a relief rally, interest rate rises remain a risk for the housing market as Britain's economy grows robustly, as seen in Friday's GDP numbers.

The headline economic growth rate for the first quarter was unchanged at 0.8 percent in revised official data on Friday, but the numbers showed that business investment was growing almost twice as fast as previously thought.

BoE Governor Mark Carney has raised the possibility of an interest rate rise later this year if wage growth picks up and economic growth does not slow down.

Elsewhere among the risers, Rolls-Royce advanced 1.9 percent on a Reuters report saying Airbus was set to upgrade its A330 planes with the aero-engine maker as an exclusive supplier.

The broader FTSE 100 index was up 0.2 percent at 6,749.47 points by 1412 GMT. However, the index was heading for a weekly drop after falling 1.1 percent this week.

Although the index rose on Friday, investors were reluctant to place big bets in the absence of new market catalysts and pending the second-quarter earnings season. Violence in Iraq also dampened appetite for riskier assets.

"Investors continue to search for the next crucial market catalyst. Central bank action and geopolitical events remain high on the agenda," Hargreaves Lansdown analyst Keith Bowman said.

"Given the degree of uncertainty, a balanced diversified investment portfolio looks to remain important." (Reporting by Tricia Wright and Atul Prakash; Editing by Hugh Lawson)

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