* FTSE 100 index rises 0.7 percent
* FTSE "fear gauge" set for biggest drop in 19 months
* ARM gains; Goldman Sachs adds to Conviction List
* Bovis Homes buoyed by enhanced dividend policy
By Atul Prakash
LONDON, Aug 18 Britain's top share index
advanced on Monday to hover just below a two-week high on relief
that a feared escalation in the Ukraine crisis had failed to
Tensions spiked on Friday when Ukraine said it had partially
destroyed an armoured column that had crossed the border from
Russia, triggering a sell-off in global shares. But Moscow made
no threat of retaliation, describing the report as a "fantasy".
The blue-chip FTSE 100, which hit a two-week high on
Friday before erasing gains to end flat, was up 0.7 percent at
6,734.60 points by 1340 GMT.
The FTSE volatility index, a gauge of investor
sentiment, shed 19.5 percent and was on track for its biggest
one-day percentage drop in 19 months in a further sign of calm
returning, at least for now.
Lee Armitage, senior trader at Accendo Markets, said that
sentiment improved on signs that the conflict may not escalate
in the near term after both the parties had talks, with Germany
and France acting as mediators.
"The FTSE is looking to regain the highs that were seen on
Friday before reports of a Ukrainian attack on a Russian
convoy sent the index spiralling downwards," Armitage said.
"A break of Friday's high of 6,743 could give hope to a push
towards 6,800, with support to the downside seen at the rising
short-term trend line at around 6,682."
Russia's foreign minister said on Monday that objections to
Russia sending a humanitarian convoy to Ukraine had been
resolved during talks between Russia, Germany, France and
Ukraine in Berlin on ways to end the conflict.
He also said there had been no progress towards a ceasefire
between the government and rebel forces in east Ukraine.
"An easing of geopolitical tensions in Ukraine has aided
investor sentiment. The potential for further talks and a
possible ceasefire appears to remain," Hargreaves Lansdown
equity analyst Keith Bowman said.
Some traders said they 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."
Among big movers, chip designer ARM Holdings rose
2.2 percent as Goldman Sachs added to some recent positive
broker comment on ARM, 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 company.
"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 mid-cap firms also rose, including housebuilder Bovis
Homes, which jumped 5.2 percent as investors welcomed
its enhanced dividend policy, while a record number of
completions boosted its first-half results.
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. The
index was up 1.5 percent on Monday.
(Additional reporting by Tricia Wright; Editing by Louise