* FTSE 100 up 0.6 pct
* FTSE 'fear gauge' set for biggest drop this year
* ARM gains; Goldman Sachs adds to Conviction List
* Bovis Homes buoyed by enhanced dividend policy
By Tricia Wright
LONDON, Aug 18 UK shares advanced on Monday in a
broad-based rally on traders' relief that a feared escalation in
the Ukraine crisis had failed to materialise.
Tensions spiked on Friday when Ukraine said it partially
destroyed an armoured column that had crossed the border from
Russia, a report that triggered a sell-off in global shares.
But Moscow made no threat of retaliation, describing the
report as a "fantasy". On Monday, Russia's Foreign Ministry said
a "certain progress" was achieved during talks between Russia,
Germany, France and Ukraine in Berlin on ways to end the
The FTSE 100, which on Friday erased earlier gains to end
flat, had risen 40.18 points, or 0.6 percent, to 6,729.26 points
by 0810 GMT.
In a further sign of returning calm, the FTSE volatility
index, a crude gauge of investor fear, shed around 15
percent, on course for its biggest one-day percentage drop this
Some traders maintained a cautious approach, mindful of
Friday's market swing which saw a near 1 percent rise on the UK
benchmark wiped out.
"We are not overly confident that a rally will be sustained.
Geopolitical risks at the moment are just too high," said Mark
Ward, head of trading at Sanlam Securities.
"We will be looking to sell into the strength."
Charles Stanley technical analyst Bill McNamara said selling
pressure was likely to kick into the FTSE 100 on any push back
Chip designer ARM was among the top risers, ahead 2.3
percent, as Goldman Sachs added to some recent positive broker
comment on the company, which sells blueprints for chip designs
and receives royalties on every chip shipped by partners.
The investment bank repeated its "buy" rating on the stock,
which it added to its Conviction List ahead of what it expected
to be a better second half for the firm.
"We see the smartphone inventory correction as substantially
resolved, and expect high-end smartphone launches incorporating
ARM v8 designs to benefit royalties," it said in a note.
Some strength was seen from the housebuilders, led by a 5.3
percent gain in Bovis Homes as investors welcomed its
enhanced dividend policy while it posted first-half results
boosted by a record number of completions.
"The dividend yield argument is still quite powerful...
yield's quite difficult to find so a sector where it's kind of
guaranteed has its extra attractions," Peel Hunt equity
strategist Ian Williams said.
"I think that's a theme that's got further to go really."
The Thomson Reuters UK Homebuilding index
jumped 7 percent last week, bolstered by weak UK wage growth
data which prompted the market to push back its expectations for
when the Bank of England would lift interest rates.
(Reporting by Tricia Wright; Editing by Andrew Heavens)