FTSE jumps to nine-month high on 'cliff' euphoria

The UK stock market leaped to a nine-month high on continued optimism that US politicians are close to a deal in their ‘fiscal cliff’ budget talks.

A relief rally saw banks lead the FTSE 100 30 points or 0.5% higher to 5,966.The FTSE 250 was faring even better, climbing 0.9% to 12,397, an all-time high for the mid-cap index. 

Lloyds (LLOY.L) was the top riser on the blue chip index, jumping 3.3% or 1.6p to 48.7p, followed by Standard Chartered (STAN.L), up 2.9% or 44p to £15.57, and RBS (RBS.L) 2.6% or 8p higher at 313.2p.

Banks were also lifted by the $1.5 billion (£940 million) fines imposed on Swiss bank UBS for Libor rate fixing. Although the fines included a record £160 million from the UK’s Financial Services Authority, the levies were in line with analysts’ expectations and removed some of the uncertainty that has hung over banking shares since the rate manipulation broke in the summer.

CRH (CRH.L), the Irish building materials group, was the second fastest riser, advancing 2.7% or 32p to £12 after Deutsche Bank upgraded the stock to ‘buy’ from ‘hold’ and lifted its target price to £14.50 from £12.75.

But Bunzl (BNZL.L) tumbled 4.3% or 46p to £10.20 after a fourth quarter trading statement by the packaging group spurred analysts to cut their profit forecasts next year. The company, which is a top 10 holding in the F&C Stewardship Growth fund managed by Citywire A-rated Catherine Stanley.

Caroline de la Soujeole, industrials analyst at Seymour Pierce, downgraded CRH to ‘reduce’ from ‘hold’, saying the shares, up 15% this year, had had a ‘good run’. The ‘deceleration in the quarter is continued pressure on the US business,’ she said.

Meanwhile Rangers (RFC.L), the Scottish football club, got off to a good start on the Alternative Investment Market. Shares in the club, which was demoted to the fourth tier of Scottish football after its parent company was liquidated this year, rose 4p to 74p in early trading. The listing has raised £22 million which chief executive Charles Green would be used to fund the club’s recovery.

See our FTSE pages for the rest of today's risers and fallers

But the big market story remained the state of the US ‘fiscal talks’ aimed at repealing some of the $600 billion of spending cuts and tax rises that could tip the economy back into recession.

European markets rose higher with the Euronext 100 index up 0.6% or four points to 687. The Athens stock market leapt by 4% after Standard & Poor's upgraded Greece's credit rating from 'selective default' to B-.

Germany’s Dax index gained 18 points or 0.2% to 7,672 after a survey from the Munich-based Ifo think tank showed German business sentiment rising for the second month in a row. Investors took the message that any recession in Germany caused by the eurozone’s woes could be short lived.

German bunds and UK gilts dipped as investors dropped the so-called safe haven government bonds in preference of shares.

On currency markets the pound headed towards a year-high against the dollar, at $1.6299, shaking off the latest minutes minutes from  the Bank of England’s monetary policy committee. These said the UK economy would flat line in the near future with inflation expected to stay above its 2% target for the next year.

The dollar dipped 0.3% against a basket of currencies after credit ratings agency Fitch warned it would strip the US of its triple A rating if there was no resolution to the fiscal cliff talks. Standard & Poor’s removed its triple A rating for the US last year.

This saw the yen recover some of its recent falls against the dollar ahead of a likely announcement of more quantitative easing, or 'money printing' by the Bank of Japan tomorrow.

Gold dropped 0.1% or nearly $2 to $1,667 as the bullish mood among investors offset the dollar weakness which normally lifts the price of the yellow metal.