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Shares rally as cliff hopes cheer investors

Shares rally as cliff hopes cheer investors

European shares lurched higher amid signs that US politicians may finally have broken free from their deadlock, to progress towards a deal to avert a ‘fiscal cliff’.

The FTSE 100 climbed 0.5%, or 31 points, to 5,943 and the Eurofirst 100 rose by 0.4% to 684 on the heels of further gains on Wall Street where the Standard & Poor’s 500 index gained 12 points or 0.8% to 1,442, its highest level in almost two months.

President Barack Obama and Republican House Speaker John Boehner met at the White House on Monday, raising expectations that Washington will be able to head off steep tax hikes and spending cuts. According to reports, Obama has offered a concession over tax hikes on the wealthy which would mean tax increases start for Americans earning $400,000 rather than $250,000.

The oil price was boosted by the news, with Brent Crude futures 0.6% higher at $108. Major currencies were little moved though, with the euro – a gauge of risk appetite – slightly higher at $1.3222.

Investors were also continuing to enjoy the fruits of Shinzo Abe’s victory in Japan’s lower house of parliament at the weekend, with growing hopes that the nation’s central bank will add to its monetary stimulus programme for the fifth time this year.

Incoming prime minister Abe used his victory to repeat his calls for the bank to act, with economists pencilling in stimulus of around JPY10 trillion from Thursday’s meeting. ‘While political pressure is strong, it is not the only factor driving the BoJ to contemplate further easing’, said Izumi Devalier of HSBC, noting Japan’s economic weakness, deflationary pressures and the tough conditions faced by companies.

Japan's Nikkei 225 rose by nearly 1%, with gains on most major Asian stock markets.  

G4S looks more secure

In London, a mixed collection of mining stocks, including Rio Tinto (RIO.L), Vedanta Resources (VED.L) and Anglo American (AAL.L) gained between 2% and 2.8% to sit at the top of the FTSE 100.

Barclays (BARC.L) gained 3.4p or 1.3% to 260.3p on news that Sheikh Mansour, owner of Manchester City football club, had increased his stake in the bank to 7%.

G4S (GFS.L) rose by 2.7% to 257p after the Financial Times reported that the security company is set to win a contract to implement the government's changes to child benefit.

Analysts said the deal showed that G4S's Olympic failures hadn't prevented the government from outsourcing to the company. 'This is welcome news for G4S but we still think it will be some time until we see a return to “business as normal” for G4S,' Caroline de La Soujeole, analyst at Seymour Pierce commented, keeping her 'hold' recommendation on the shares.

Aviva (AV.L) added 2.6p to 372p after the insurer said it would transfer its entire holding in Spanish joint venture Aseval to partner Bankia as part of a €608 million (£495 million) legal settlement betwen the two. Aviva said the deal would boost its economic capital surplus by about £500 million.

Among smaller companies Quindell Portfolio (QPP.L) was a star performer, its shares rising nearly 12% or 1.5p to 14p after the outsourcing technology company said it expected full-year results to be significantly ahead of market expectations. The company is a top 10 holding of the Diverse Income Trust managed by Gervais Williams.

See our FTSE data pages for the day's other risers and fallers

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Gervais Williams
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