* FTSE 100 rises 1.3 pct after hitting 2-mth low
* Index finds technical support following sell-off
* Aggreko posts sharp gains after profit guidance
By Atul Prakash
LONDON, Dec 16 (Reuters) - Britain’s top share index bounced back from two-month lows on Monday as power provider Aggreko jumped on an upbeat profit outlook and the broader market found some technical support following a recent sell-off.
A survey showing euro zone businesses were ending the year on a high as new orders surged also helped the blue-chip FTSE 100 to extend gains.
The index closed 82.24 points, or 1.3 percent, higher at 6,522.20 points, rebounding after having earlier fallen to 6,422.23, its lowest since early October.
“The recent economic data has strengthened investors’ confidence in the sustainability of the developed world recovery,” said Daniel McCormack, strategist at Macquarie.
“We saw quite a bit of profit taking in early December after a very good year and the market came off, resulting in valuations looking quite OK. People are just dipping their toes back into the water again.”
According to Thomson Reuters Datastream, the FTSE 100 is trading at 12.3 times its 12-month forward earnings, against a 20-year average of 14.5 times.
The benchmark index had fallen in the previous four sessions and suffered its biggest weekly decline last week since late June, for its sixth consecutive week of losses. However, it is still up nearly 10 percent this year.
Charts showed the index found crucial technical support after recent declines, with its 14-day relative strength index (RSI) falling below 30, which indicates “oversold” levels and often triggers a bounce back. The index also touched a support trendline that has been in place since mid-2013.
“Since November, the index has retreated 5 percent and the price is now back down to its trend line support. This coincides with the RSI moving out of oversold territory,” Brewin Dolphin technical analyst Julian McCormack said.
“The combination of these events suggest that the sell-off is now overdone and we expect the FTSE 100 to rally in due course, continuing its uptrend. An upside move in the region of 6 percent is not unrealistic over the next quarter, which would see the index test resistance at around 6,850.”
The bounceback was helped by Aggreko, which jumped 8.5 percent after the company, which will provide temporary power for next year’s soccer World Cup in Brazil, said its full-year results would beat analysts’ expectations.
The broader market was also helped by the euro zone data, with Markit’s Flash Eurozone Composite Purchasing Managers’ Index (PMI), which gauges business activity across thousands of companies, rising to 52.1 in December from 51.7 last month. It was the second-highest reading since mid-2011.
“The euro zone PMI is relevant for the FTSE, given that the index is an international index with about 70 percent of sales sourced overseas,” HSBC strategist Robert Parkes said.
“The PMI data supports our view that the macro picture in Europe is one of gradual improvement. The key event this week, however, remains the FOMC decision on tapering and this is likely to set the tone for the last few trading days of the year.”
Concerns that a cut in the U.S. Federal Reserve’s monetary stimulus may come as early as this week, when its Federal Open Market Committee (FOMC) meets on Tuesday and Wednesday, had prompted investors to trim their equity exposure in recent sessions.
The market consensus is still predicting the Fed will not act at this week’s meeting. However, recent U.S. economic data suggests the beginning of the end of the Fed’s massive bond-buying programme will come sooner rather than later.