Stocks rebounded strongly on Thursday after hitting a three-month low the day before, as hopes that US politicians can resolve the ongoing deadlock in Washington prompted bargain hunters back into the market.
The FTSE 100 finished 92.58 points higher at 6,430.49, a rise of 1.46%. This comes after the index ended Wednesday's session at 6,337.91, its worst level since July 3rd.
"The volume and enthusiasm of buying today appears to represent more of a reshuffling of books than conviction buying; however, regardless, the positive price movement across the markets will have been welcomed by traders battling fatigue from almost a month's worth of negativity," said Alastair McCaig, Market Analyst at IG.
As expected, the Bank of England's Monetary Policy Committee (MPC) decided to hold the Bank Rate at 0.5%. The central bank has vowed to maintain the rate at its record low until the unemployment rate falls from its current level of 7.7% to 7%. The MPC also kept its asset purchase programme unchanged at £375bn.
Signs of progress in Washington; taper could be delayed
There were some signs of progress among US lawmakers today as Republicans showed their support for a short-term deal to raise the debt ceiling in order to avoid a dreaded default.
House Speaker John Boehner announced a proposal this afternoon to raise the limit for six weeks without conditions tied to changes in policy. He said he hopes that Obama would view the "good-faith" move as an attempt to meet him halfway on negotiations over the budget.
Markets were also reacting to last night's minutes of the latest Federal Open Market Committee meeting which showed that most members at the central bank still thought it would be appropriate to begin tapering quantitative easing before the end of the year. However, given that the meeting took place before the government shutdown, many now believe that a taper could be delayed until next year.
"If the decision on the debt ceiling is pushed back to December, I can't see how the Fed could justify reducing its support when such a big threat hangs over the economy," said Market Analyst Craig Erlam from Alpari. "It also may not be clear at that stage exactly how big an impact the shutdown has had on the economy, and more importantly, consumer and business confidence."
Also spurring hopes for a continuation of stimulus was yesterday's nomination of well-known dove Janet Yellen as the next chair of the US Federal Reserve. Yellen will be the first female at the head of the US central bank and has been an advocate of the aggressive monetary easing started by her predecessor, Ben Bernanke, who steps down on January 31st 2014.
FTSE 100: Persimmon extends recent gains
House builder Persimmon was a high riser this afternoon as optimism over the government's 'Help to Buy' scheme continues to help the stock bounce off recent lows. Since hitting its worst level in five months at the end of the September, the stock has surged, rising 12% in the last three days alone.
Engineering giant GKN rose strongly after announcing that it has pinched Finance Director Adam Walker from business and events group Informa to replace William Seeger who will step down next year. Speaking in a research note on Informa, analyst Alex DeGroote from Panmure Gordon said that "Walker has been at Informa for almost six years and is well-known and liked by the investor community".
Financials were also performing well this afternoon, with Legal & General, RBS, Standard Life and Schroders making impressive gains.
leapt on market chatter about a potential spin-off of its Costa Coffee chain. Analyst Jeffrey Harwood from Oriel Securities said Costa could split off on the basis that it "is difficult to believe that the group's current structure is optimal" based on its role within the company.
Household utility giant SSE was lower after revealing that electricity and gas tariffs are to rise by an average 8.2% from November as the company attempts to pass on rising wholesale energy costs to customers.
FTSE 250: Keller jumps, N Brown slumps
Ground engineering firm Keller jumped today, one day after its announced purchase of Esorfranki Geotechnical, the largest ground engineering business in South Africa, as it looks to accelerate its entry into selected sub-Saharan construction markets.
Meanwhile, catalogue and internet shopping firm N Brown was extending losses after its first-half results yesterday. Citigroup retained its 'neutral' rating for the stock this morning, choosing to sit on the fence with the stock trading at 14 times earnings.
Newsagent WH Smith surged after booking a full-year profit ahead of expectations, lifting its final dividend 15% and announcing a further £50m share buyback. Pre-tax profit rose 6% to £108m for the year ended August 31st while total sales fell 5% to £1.18bn.
FTSE 100 - Risers
Persimmon (PSN) 1,195.00p +5.66%
GKN (GKN) 358.20p +4.37%
Legal & General Group (LGEN) 194.50p +4.29%
CRH (CRH) 1,503.00p +4.16%
Royal Bank of Scotland Group (RBS) 384.90p +4.11%
Whitbread (WTB) 3,114.00p +4.08%
ARM Holdings (ARM) 983.50p +4.02%
Standard Life (SL.) 346.40p +3.96%
Schroders (SDR) 2,584.00p +3.65%
International Consolidated Airlines Group SA (CDI) (IAG) 338.60p +3.64%
FTSE 100 - Fallers
Vedanta Resources (VED) 1,015.00p -0.49%
SSE (SSE) 1,449.00p -0.34%
GlaxoSmithKline (GSK) 1,545.50p -0.29%
Shire Plc (SHP) 2,381.00p -0.25%
FTSE 250 - Risers
Keller Group (KLR) 1,050.00p +11.70%
Imagination Technologies Group (IMG) 280.70p +7.10%
Rank Group (RNK) 164.30p +6.83%
Dixons Retail (DXNS) 46.70p +5.82%
Ashtead Group (AHT) 624.00p +5.76%
WH Smith (SMWH) 882.00p +5.63%
EnQuest (ENQ) 128.90p +5.31%
Restaurant Group (RTN) 545.00p +5.21%
Jupiter Fund Management (JUP) 369.30p +4.91%
Fenner (FENR) 399.00p +4.75%
FTSE 250 - Fallers
Brown (N.) Group (BWNG) 475.70p -2.72%
Moneysupermarket.com Group (MONY) 142.50p -2.20%
African Barrick Gold (ABG) 151.50p -1.62%
Greggs (GRG) 433.00p -1.23%
Dunelm Group (DNLM) 856.50p -1.21%
Fisher (James) & Sons (FSJ) 1,120.00p -1.06%
Inmarsat (ISAT) 697.50p -1.06%
Marston's (MARS) 143.00p -1.04%
Essar Energy (ESSR) 126.50p -0.94%
IP Group (IPO) 136.20p -0.87%