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FTSE bounces back from two-month low, technicals support
December 16, 2013 / 12:10 PM / in 4 years

FTSE bounces back from two-month low, technicals support

* FTSE 100 rises 0.5 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, led by power provider Aggreko after it gave encouraging profit guidance, and as the market found some technical support after recent sell-offs.

A survey showing euro zone businesses ended the year on a high as new orders surged also helped the blue-chip FTSE 100 to extend gains. The index was up 32.94 points, or 0.5 percent, at 6,472.90 points by 1131 GMT, after having fallen as far as 6,422.23, its lowest since early October.

The FTSE 100 index recouped some losses after falling in the past four sessions and ending last week in negative territory, its sixth consecutive week of losses and the biggest weekly decline since late June. However, it is still up nearly 10 percent so far 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 leads in 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 bounce back was helped by a 6 percent rally in Aggreko after the company, which will provide temporary power for next year’s soccer World Cup, said its full-year results would beat analysts’ expectations.

“Smaller and slightly different contracts such as Panama show Aggreko continues to break new markets with nimble deals, though the ‘splash’ contract many want to see may be some way off. Nevertheless, Aggreko remains well placed and we remain buyers,” Panmure analysts said in a note.

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 last few trading days of the year.”

Concerns of a cut in the U.S. Federal Reserve’s monetary stimulus starting as early as this week, when a meeting of the Federal Open Market Committee takes place, had prompted investors to cut their equity exposure in the past sessions.

Though the odds still point to no major policy change during the Dec. 17-18 meeting, most of the recent domestic economic data suggest the beginning of the end of the Fed’s massive bond-buying programme will come sooner rather than later.

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