Market Report: BA shares take off after US tie-up approval

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The Independent Online

British Airways has had its fair share of bad news to endure in recent years, which is why seeing the group soaring at high altitude near the top the FTSE 100 yesterday was a welcome sight.

The shares reached 200.2p, rising 4.7p –a 2.4 per cent leap – on the day, after the markets got their first opportunity to react to the US Department of Transportation's preliminary approval for BA's transatlantic tie-up with American Airlines. The two groups have been trying to get the deal away for the best part of 12 years, which would allow them to collude on prices.

The announcement has got Sir Richard Branson, the president of Virgin Atlantic, in a flap, especially as the DoT told BA they would only have to surrender four runway slots at Heathrow, a tiny number compared to what the DoT has asked for in the past.

The market was certainly encouraged, however, and BA's stock has quietly been one of the winners in recent months as the company appears to have steadied flagging passenger numbers, has started talks with Iberia about a merger and now got the green light from the DoT.

Commentators pointed out yesterday that trading on the FTSE 100 was within narrow boundaries, indicating that any return to confidence is probably limited at the moment.

"Market trading ranges are getting tighter and tighter at the moment with the FTSE 100 bashing around between 5120 and 5185 (approximately). In fact the index has retraced this range no fewer than nine times in the last four trading sessions," said the experts at Capital Spreads.

"This morning does not look much different with dealers buying up to 5190 in early action from pre-market levels of close to 5140 only for pressure to start to fade and sellers to emerge once again. The move this morning was prompted by the European markets which are climbing on rumours of yet another deal over the Greek crisis."

The index of leading shares inched up 24.15 points to 5166.6. The day's biggest riser was Barclays, which is expected to announce £11.2bn in pre-tax profits when it becomes the first of the UK's major banks to report full-year results today. Investors are no doubt encouraged that the amount handed back to bankers in the shape of bonuses will be "just" 38 per cent of revenue, about £2.3bn, the lowest ratio for a decade. Barclays climbed 13.05p to 275.05p.

Yesterday was also a good day for the yo-yoing mining sector. The diggers appear to jump to the top of the index one day, only for traders to take profits the next.

Shareholders made money yesterday, however, as a number of miners that reported results last week made gains.

Chief among the mining climbers was Rio Tinto, which put on 69p to 3275p. After an update last week, which was interpreted as more upbeat than rival (or partner, on iron ore mining in Western Australia) BHP Billiton, investors have seen the share price put on more than 5 per cent.

Xstrata was also up, 13.5p to 1018.5p, on the back of stronger expectations on commodity prices. The Anglo-Swiss group was up despite workers at its Tahmoor Colliery in New South Wales set to go out on strike later this week.

Away from the miners, the insurance sector was also in clover. Legal & General, up 1.7p to 71.5p, Old Mutual, which put on 1.4p to 102.1p, and Aviva, which closed the day at 366.1p after putting on 6.2p, all made gains. The sector is hoping to be given a boost tomorrow when Legal & General reports its fourth-quarter results.

BT Group was yesterday's wooden spoon winner, falling 3.1p to 119.4p. Not even an update from the credit ratings agency Fitch, affirming BT's debt rating at BBB, helped. The falls follow a trend, with BT dropping by more than 15 per cent in the last month.

Joining BT in the doldrums was the emergency power supply outfit Aggreko, which fell 11p to 901p, despite the group supplying power to much of the Winter Olympics in Vancouver (sadly, the group appears unable to make it snow). Yesterday's falls appeared to be motivated by profit-taking after strong recent trading.

There was a similar story in the second division as the FTSE 250 put on 19.99 to close the day at 9072.96.

The gains were largely thanks to the 14.96 per cent, or 76p, hike from defence contractor VT Group after getting its £1.14bn bid from the shipbuilder Babcock International.

Ferrexpo, the London-listed, Swiss-headquartered, Ukraine-based iron ore miner, put on 11.4p to 241.4p, benefiting from stronger sentiment.

Imagination Technologies was bottom of the FTSE 250 pile, losing 18.6p, or 6.85 per cent of its value, after a strong week last week. The shares closed the day at 253p.

Mouchel, the infrastructure consultancy, initially took the plaudits in the small-cap land as VT Group had increased its bid to £330m, up from £271m. Mouchel's shares jumped by as much as 14 per cent, but the good news was shortlived and after Babcock's intervention, Mouchel crashed to 220.25p, a drop of 29.75p.

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