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FTSE 100 jumps 0.9% as Summers exits Fed race
by Sarah Miloudi on Sep 16, 2013 at 12:30
The FTSE 100 has been given a boost following Lawrence Summers' decision to quit the race to become the Federal Reserve's next chair.
Within the first hour of the morning session, Britain's blue chips rose to 6,629, up 0.61%, and later quickly added to these gains by climbing a further 0.3% to 6,644, up 63 points on the day.
Traders' gaze was locked firmly on the developments across the Atlantic, where Summers and Janet Yellen had been vying to become the next leader of the Federal Reserve.
On Tuesday, members of the Fed's open market committee will meet to discuss paring back quantitative easing, which has seen the central bank pump $85 billion into bond markets every month. There is uncertainty now whether they will hold off until December.
'Significantly, Lawrence Summers has withdrawn from the race to be the next Federal Reserve chairman paving the way for Janet Yellen take up the reins,' said Max Cohen of Spreadex.
'Investors are of the belief that Yellen may not scale back QE as aggressively as her rival Summers would,' he added.
The prospect of a more dovish Yellen could succeed Ben Bernanke at the Federal Reserve hit the dollar and pushed the pound to $1.5926 from $1.5873 against the greenback.
However, Simon Lewis, chief economist at Monument Securities, cautioned that investors were taking a simplistic view of the situation and that neither Summers or Yellen easily fell into 'hawk' and 'dove' categories. Yellen or other candidates were likely to stick to Bernanke's timetable for scaling back stimulus, he said.
Although Summers was Obama's favoured candidated to succeed Bernanke, he aroused the opposition of many Democrat senators who disliked his deregulatory influence as a former Treasury secretary and who held him partly responsible for the 2007-09 financial crisis.
Both moved up on the back of company specific data; investors cheered the arrival of Tom Albanese, the former chief executive of Rio Tinto (RIO.L), up 1.4% to £31.86, who has become chairman at one of Vedanta's subsidiaries, while at Bumi more details emerged on its separation from Indonesia's Bakrie family.
Meanwhile, Cobham (COB.L) shares dropped 2.3% after analysts at Liberum Capital downgraded the defence contractor. UBM (UBM.L) shed 1% after its chief executive David Levin announced he would stand down from the media company next July.
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