* 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 (Reuters) - 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 conflict.
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 year.
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 above 6,800.
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)