Leading shares have recorded their seventh successive rise, the market's best winning streak for nearly a year.
Banking shares were among the main winners, as a number of European bond auctions - including the UK, Spain and France - went well, and relieved some of the concerns about the debt crisis on the continent. At the same time the sector was boosted by the lack of immediate news in George Osborne's Mansion House speech on imposing new taxes and breaking up the banks, although both are still in the forefront on ministers' minds. Royal Bank of Scotland rose 1.53p to 46.70p as it continued its disposal of unwanted businesses by selling its Kazakhstan operation to HSBC for $52m. Lloyds Banking Group added 1.56p to 57.19p and Barclays climbed 7.8p to 312.65p as UBS repeated its buy recommendation on both banks but edged down its price targets.
Overall the FTSE 100 finished 15.97 points higher at 5253.89, its best consecutive run since the 11 days of gains in the middle of July 2009. The rise came despite Wall Street losing around 40 points by the time London closed, with US investors troubled by poor Philadelphia factory figures and weekly jobless numbers.
However the index could have been in negative territory if not for BP. A 22.7p rise in the oil company's shares to 359.7p - even as Tony Hayward faced a grilling at the US Congress - added around 17 points to the FTSE 100. Analysts seemed to think the $20bn compensation fund and the dividend cut at least drew a line in the sand, although many admitted the ultimate cost of the Gulf of Mexico disaster was still unquantifiable.
Oil services group Petrofac fell 33p to £12.54 as Nomura downgraded from buy to neutral. The bank said:
Petrofac has been a core buy in our oil services portfolio ever since we initiated coverage in February 2009. Since then, the company has gone from strength to strength, growing backlog by over 80% to $7.3bn today and continuing to deliver industry leading margins. Strong share price performance has accompanied operational success, the stock outperforming the oil services sector by almost 100% (constant currency) over the same period. Although we remain positive on the long-term fundamentals, we believe the company's robust track record and growth prospects vis-à-vis its oil services peers are now close to being fairly reflected in its premium relative valuation. We see little scope for further relative outperformance versus the wider sector near-term and downgrade to neutral with a slightly increased price target from 1240p to 1300p.
Thomas Cook slipped 2p to 203.5p after it said it was on the lookout for acquisitions in Germany, and was also linked with a stake in Russia's Intourist. Rival Tui Travel fell 6.2p to 225.8p.
Some of the takeover froth was blown from Northumbrian Water, down 4.8p to 303.2p as Goldman Sachs repeated its sell rating and edged its price target down from 268p to 266p. The bank said:
We have slightly reduced our 12-month, sum of the parts-based price target , largely reflecting an increase in the mark-to-market value of Northumbrian's debt, partly offset by a lower net debt figure. We estimate that it is trading at a 7% premium, the highest of the listed water companies. With absolute downside to our price target of 9%, we rate the stock as a sell relative to the wider European utilities universe, where we see average potential upside of more than 30%.
But - as rumours swirled this week about a possible bid from its major shareholder, the Ontario Teachers' Pension Plan board, the bank added:
Key risks to our forecasts and price target are higher-than-expected inflation, better performance in cost-cutting, or the return of M&A to the water sector.
Speculators have now turned their attention to Cape, the support services group, and its shares closed 26p higher at 227.5p.
Elsewhere Heritage Oil fell 13.4p to 457.4p on worries about delays to the sale of its Ugandan assets to Tullow Oil, down 9p at £11.57, for $1.5bn. The problem is that the company but is in dispute with the Ugandan government about whether it should pay tax on the deal, with the government holding out for $360m. Heritage has proposed the problem goes to arbitration in London, and if this is agreed the deal could complete quickly, with the tax question debated as a separate issue.
But platinum specialist Johnson Matthey, which is involved in the supply of catalytic converters, added 38p to £16.10 after Deutsche Bank upgraded from hold to buy and raised its price target from £15 to £19. The bank said:
Johnson Matthey is entering a period of accelerating earnings growth we expect to last at least three years, with benefits from tightening emissions legislation. Recent underperformance means the step-up in growth can be accessed through more reasonable multiples. At 14 times 2010 PE, 12% below the long-term average, this does not reflect the structural growth being delivered. We see fears over leverage to auto production as overdone and our analysis indicates a 5% reduction in auto production would reduce full year earnings per share by 5%.
