Unilever, Lloyds TSB Group and Barclays have topped analysts' expectations over recent weeks.
"Companies have delivered earnings that have been better than lowered expectations,'' said Howard Maguire, who helps manage $20bn in UK equities at Threadneedle Investment Management. "That's what the market is picking up on.''
The FT-SE 100 index rose 0.5 per cent last week, gaining 104.1 points, or 1.7 per cent, to 6205.5 on Friday. BP Amoco led the gainers, rising 5.3 per cent, as crude added as much as 6.7 per cent.
Lloyds, Barclays and other banks could be among the gainers this week as investors consider the threat of recession less likely. Maguire said he's weighing banks.
"We're looking into areas that have been unduly depressed because of fears of recession,'' he said. "It's not as bad as we thought it was going to be.''
Although the Bank of England left the benchmark lending rate unchanged last week, investors still see rates likely to fall from 5.5 per cent by the end of the year. That's good news for banks that benefit from increased revenue from lending.
House builders also benefit as the cost of borrowing slides, encouraging individuals to borrow to buy houses.
"The economy from a cyclical point of view looks OK with interest rates heading down,'' said Khuram Chaudhry, a UK strategist at Merrill Lynch.
Among construction companies releasing earnings this week, Aggregate Industries reports 1998 profit on Wednesday. It could say full-year earnings per share rose to 4.26p from 2.9p last year, according to analysts polled by IBES International.
Tilbury Douglas, a construction company reporting Thursday, could say 1998 earnings per share rose to 20.38p from 18.2p last year, according to analysts surveyed by IBES.
Last week, Wilson Bowden, a UK homebuilder, said 1998 profit rose 36 per cent on strong growth in home sales.
GlaxoWellcome, the world's second-largest drugmaker, was among the leading decliners last week, dropping 3.1 per cent. Vodafone, the UK's largest phone company, lost 2.5 per cent.
These declines reflect a shift out of highly valued growth stocks into areas more sensitive to swings in the economy.Reuse content