FTSE edges up from five-week lows on EM relief, M&A

LONDON (Reuters) - The FTSE 100 picked up on Tuesday from five-week lows after finding strong technical support in the face of easing tensions in emerging markets and prospects of mergers and acquisitions.

The London Stock Exchange building is seen in central London September 24, 2009. REUTERS/Stephen Hird

Emerging market assets steadied after a three-day slump, reviving confidence in global risk assets and reassuring investors worried that companies will be hit by adverse exchange rate moves, falling demand and increased competition.

Miners, which rely heavily on demand from emerging markets like China, did well. Rio Tinto rose 2.3 percent and Anglo American added 1.8 percent.

Aberdeen Asset Management, which invests around a third of its equities funds and 14 percent of fixed-income portfolios in emerging markets rose 3.0 percent.

Shares of asset managers also benefited from the prospect of acquisitions after Bank of Montreal agreed to buy mid-cap F&C Asset Management. F&C rallied 6.1 percent.

The prospects of deals echoed in the utilities sector, with media speculation continuing to highlight Severn Trent as a possible takeover target. Its shares added 4.6 percent.

“I think that (M&A) is going to be a recurring feature and may be one of the supporting factors for the market,” said Peter Botham, chief investment officer at Brown Shipley.

“We’ve had two or three bad days because of external events evolving around emerging markets, but ... investors are a bit calmer now - having seen a bit of a setback they feel a bit more comfortable putting money back in the market.”

The broad FTSE 100 closed up 21.67 points, or 0.3 percent at 6,572.33 points, rebounding from technical support at the 200-day moving average around 6,556.64 points.

Volumes, however, were in-line with average, with investors cautious ahead of this week’s Federal Reserve meeting. All eyes will be on whether the Fed pushes ahead with plans to trim its quantitative easing - a move which could further hit liquidity-reliant emerging markets.

“The 200-day moving average (on FTSE) coupled with rising trend-line support from the June 2012 lows is providing a decent buy-on-dips level,” said Brenda Kelly, an analyst at IG Markets.

“Clearly, the jury is out on whether this current bounce is merely a relief rally ahead of the FOMC statement tomorrow, where the consensus expectation is for an additional shaving of $10 billion (6 billion pounds) to the current QE programme.”

The FTSE - whose member companies on average make around a third of their sales outside of Europe and North America - has fallen 4.2 percent in the past five sessions, hitting five-week lows and underperforming other European bourses.

In addition to emerging market concerns, investors have been worried about the full-year 2013 earnings season, now in swing, and whether it will deliver profits strong enough to justify relatively elevated valuations.

So far, the signals have been mixed. Underscoring the risks, Fresnillo fell 3.1 percent after reporting a fall in gold production.

Editing by Larry King and Susan Fenton