September 3, 2014 / 9:31 AM / 3 years ago

FTSE hits 14-1/2 year high after Russia, Ukraine agree on steps towards peace

* FTSE 100 index rises 0.9 percent

* Hits 14-1/2-year high after Ukraine ceasefire news

* Ashtead up after raising guidance

By Atul Prakash

LONDON, Sept 3 (Reuters) - Britain’s top share index touched a 14-1/2-year high on Wednesday on news of agreement between Ukraine and Russia on how to move towards peace in eastern Ukraine and on upbeat UK services sector data.

The FTSE 100 index rose to 6,898.62 points, its highest level in more than 14 years, after Ukrainian President Petro Poroshenko’s press office said in a statement that Poroshenko had reached agreement with Russia’s President Vladimir Putin on a “permanent ceasefire” in eastern Ukraine’s Donbass region.

Russia later tempered that view, saying Putin and Poroshenko had agreed on steps towards peace in eastern Ukraine but a ceasefire had not been agreed because Russia is not a party to the conflict, according to Russian news agency RIA.

The FTSE, however, was still up 0.8 percent at 6,883.42 points by 0912 GMT.

“It’s favourable for the market. It reduces some uncertainty and suggests that investors will have one less tail risk to deal with. It doesn’t mean that the Ukraine crisis is over, but it is a step in the right direction,” James Butterfill, global equity strategist at Coutts, said.

“It comes at a time when European economies are showing signs of a decline. The ceasefire news could help boost business confidence.”

Data showing Britain’s services industry expanded last month at the fastest pace in nearly a year also lifted sentiment.

“We are getting a pop (in markets) but I would be very cautious because we have seen ceasefires before,” Michael Hewson, analyst at CMC Markets, said.

Investors awaited the European Central Bank’s policy meeting on Thursday for hints about the market’s direction.

Comments by ECB President Mario Draghi in late August sparked market bets that the central bank is preparing to pump more liquidity into the system to boost the economy and stave off the risk of deflation. However, sources from within the central bank said last week that new action at the meeting was unlikely but not impossible.

While many market participants do not expect the ECB to take major easing steps this week, further measures are considered a matter of ‘when’ and not ‘if’ in the face of risks to euro zone growth posed by low inflation as well as the Ukraine conflict.

“It needs to be seen if recent gains will be sustained and are based on new ‘long-term’ buyers entering the market or if they have merely been the result of short-covering ahead of the ECB meeting,” Markus Huber, analyst at Peregrine & Black, said.

Among individual sharp movers, industrial equipment hire group Ashtead rose 3 percent after raising its full-year guidance following a 33 percent rise in first-quarter pretax profits on strong demand from the United States and Britain.

“Summer has clearly been good for Ashtead, giving enough confidence to increase forecasts this early being a very good sign,” Paul Jones, analyst at Panmure Gordon, said.

“With most of the progress coming as a result of additional fleet, we expect future yield improvements to drive growth even further as market recovery continues.” (Editing by Susan Fenton)

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