Banks and insurance companies extended last week's gains on hopes that the US Federal Reserve will announce further measures to spur the economy after a meeting tomorrow.
Investors are expecting the US central bank will start buying bonds in the market, as cutting interest rates, already at 0.25%, is unlikely.
The US Labour Department said on Friday the country lost 131,000 jobs in July, more than the 65,000 expected.
Banks, insurance and fund management companies would benefit from more economic incentives as their income is directly linked to investors having more confidence in the financial markets. Schroders led gainers with a 57p, or 4.1% jump to £14.28p, while Legal and General added 3.4%, or 3p, to 90.1p. Prudential gained 2.7%, or 15.5p, to 587p, while Old Mutual rose 2.5%, or 3.1p, to 127.5p.
"Not that we expect any change to rates or "extended period" language but the big question is whether they ease monetary policy in light of the weak economic data of late," said Gary Jenkins, a credit analyst at Evolution Securities. "Even if the Fed does not take further easing measures this time around we would presume that it would not take much further weakness in the data for them to do so in the near future. We think that Mr. Bernanke will err on the side of caution, which in this particular instance means acting too soon rather than too late."
