17.00 (Update): The UK stock market held on to its gains in the afternoon as US shares edged higher in response to broadly encouraging economic data.
However, the mood remains cautious as President Obama and the Republicans prepare to hold last-minute talks to avoid the start of 'sequestration' spending cuts tomorrow.
The FTSE 100 closed 35 points or 0.5% higher at 6,360 as revised GDP data showed the US economy grew 0.1% in the fourth quarter rather than the 0.1% fall first recorded.
FTSE recovers from Italian shock
As the chart below shows the FTSE 100 has almost fully recovered from its slide at the start of the week prompted by the inconclusive result of Italy's general election.
US private sector looking strong
On Wall Street the Dow Jones industrial average gained five points or 0.03% to 14,079 and the S&P 500 added 2.6 points or 0.2% at 1,518 as separate figures showed a fall in the number of people signing on for unemployment benefits last week. Meanwhile the Chicago Purchasing Managers Index produced a better-than-expected reading of 56.8 in February. The 50 level separates growth from contraction in these surveys.
Chris Williamson, chief economist at Markit, the financial data provider, said although the GDP revision was minor it could bolster business and consumer confidence. 'Once a 3.9% drop in exports is factored in, largely reflecting weak growth in Europe, and a 6.9% drop in government purchases, the underlying picture is one of firm underlying growth in the domestic private sector US economy.'
He added: 'That will provide little comfort to policymakers, however, as even this underlying pace of economic growth remains far too low to generate satisfactory job creation, suggesting that the stimulus put in place so far by the Fed [Federal Reserve] remains insufficient to bring the jobless rate down to any significant degree.'
IAG leads buoyant FTSE higher
9.00: British Airways owner IAG soars on better-than-expected results while the FTSE 100 continues its rally after overnight gains in Asia.
The FTSE 100 continued its recent rally in the morning after US and Asia markets advanced overnight following dovish comments by Mario Draghi, president of the European Central Bank.
The UK’s blue chip index gained 35 points or 0.5% to 6,361 riding the momentum provided by Draghi who yesterday followed his US counterpart Ben Bernanke in ruling out an early withdrawal of the ECB’s crisis measures to support Europe's financial system.
In the UK investor sentiment was bolstered by the latest GfK NOP consumer confidence survey showing public morale remained resilient, unchanged from a recent high in January.
On currency markets the pound edged higher against a weaker dollar to $1.5184. Against the euro it firmed to 86.5p to a euro.
The yen gained 0.2% against the US currency to 92.39 yen to the dollar after the Bank of Japan confirmed its next governor would be Haruhiko Kuroda, currently president of the Asian Development Bank. Japan’s currency has previously fallen in expectation that the BoJ will pursue currency devaluation aggressively as a way to reflate Japan’s depressed economy under Kuroda.
Walsh talks tough
In London British Airways owner IAG (ICAG.L) led the FTSE 100 higher, soaring 14.8p or 6.7% to 236.5p as full-year losses of €68 million (£58.7 million) beat expectations. Analysts applauded chief executive Willie Walsh (pictured above) who pledged to restructure the group and to not back down in the face of union opposition and strikes at changes he wants to make at its loss-making Iberia business in Spain.
‘We have embarked on a significant transformation programme in Iberia and these results emphasise further that the airline must adapt to survive,’ said Walsh.
James Hollins, analyst at Investec Securities said: ‘We see Willie Walsh winning the battle on driving the required turnaround and we retain our “buy”.’ Investec has a target price on the shares of 270p.
ITV (ITV.L) basked 3.8p or 3.2% higher at 122.8p after yesterday’s well received full-year results.
Reed Elsevier (REL.L) gained 16p or 2.3% to 715p as the Anglo-Dutch publishing group posted an 8% rise in pre-tax profits to £1.5 billion and set aside £300 million for further share buybacks.
Chief executive Erik Engstrom said the company had started 2013 with positive momentum, noting that 80% of revenues now come from electronic publishing or its conferences division.
Banks advanced, buoyed by the rising market and the compromise struck in Europe over plans to cap bonuses. Lloyds (LLOY.L) firmed 0.8p or 1.5% to 54.5p and Standard Chartered (STAN.L) gained 23p or 1.3% to £17.98.
Royal Bank of Scotland (RBS.L) was the exception falling 9.3p or 2.7% to 337.6p after declaring a £3.5 billion operating profit for 2012, up from £1.8 billion in the previous year. At a pre-tax level, however, it lost £5.2 billion with a £4.6 billion charge on losses in the value of its own debt the main factor.
Chairman Philip Hampton said the bank was ‘much closer’ to being healthy enough to resume paying dividends and for the government to start selling its 82% in the bailed out bank.
Kazakhmys (KAZ.L) was the biggest FTSE 100 faller, diving 37.5p or 5.5% to 639.5p. Core profits plunged 30% as the miner was hit by weak commodity prices and rising costs.
Direct Line does well
Direct Line (DLGD.L), the general insurer spun off from RBS last year, rose 1% or 2p to 212.5p after posting better-than-expected full-year results. 2012 operating profits rose 9.3% to £461.2 million, more than the £454 million analysts had forecast. The shares have risen 20% since the flotation in October.
Jupiter Fund Management (JUP.L) gained 6p or 1.9% to 365.6p after impressing investors with a 13% rise in the dividend and higher than exepected full-year profits.
Howden Joinery (HWDN.L), the kitchens and joinery supplier to the building trade, jumped 7% or 13p to 203.6p after its full-year profits beat forecasts and it said trading in 2013 had got off to a good start. This values the former Citywire Top Stock at £1.3 billion.
But Spirent Communications (SPT.L) fell 5.7% or 9.4p to 156.4p after cuts in spending by US customers hit the telecoms testing company's 2012 results.