London Market: Stocks buoyed by rising profits

UK stocks seem to be climbing on the optimism that interest rates have peaked, brightening the corporate profit outlook. South West Water and other utilities will be in focus while reporting earnings.

The benchmark FT-SE 100 Index rose 0.64 per cent on the week to 5955.6 while the broader FT-SE 250 Index jumped 43.3 points to a record 5897.8, up 1.72 per cent. Investors think the FT-SE 250 will continue to outperform the benchmark index.

"Quite a few of the medium-sized companies look good value, and weaker sterling will help," said Gregor Logan, an investment director at MGM Assurance. "The fear of a rate rise has now receded."

South West Water, Anglian Water, United Utilities, Yorkshire Water and Bristol Water Holdings are slated to report full-year earnings this week.

"We are looking for reasonable dividend growth for water companies," said Peter Cogliatti, a trader at Williams de Broe. "Anything above 10 per cent would be good and anything under 8 per cent will be disappointing."

Water shares haven't risen as much as the rest of the stock market this year, hurt by the prospects of government-proposed price cuts. The FT- SE Water Index has climbed only about 7 per cent this year, compared with 17 per cent by the FT-SE 100 Index.

Bonds are expected to be little changed, and with little domestic economic news expected, overseas debt markets are seen as the most significant influence on gilts.

The only economic reports slated for release are a CBI survey of manufacturing activity on Thursday and a report on international trade on Friday. Both are expected to reinforce expectations that interest rates won't rise again soon.

"Domestically there's little for the market, and what there is won't change interest rate sentiment," said Philip Uglow, an economist at Sakura Bank.

"Gilts will take their lead from international markets, with US Treasuries probably the dominant influence."

On Friday, gilts were little changed after a report which showed that the economy grew in line with expectations in the first quarter. The benchmark 7.25 per cent government bond yield fell 2 basis points to 5.82 per cent.

Growth in first-quarter gross domestic product, a broad measure of economic activity, was revised to a gain of 0.5 per cent in the quarter and an annual rate of 2.9 per cent.

That's up from preliminary estimates of 0.4 per cent for the quarter and 2.8 per cent for the year.

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