Market Report: Footsie index swings to 15-month high

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The Independent Online

Festive cheer drove the FTSE 100 to a fresh high in its last session before Christmas, with the index closing above 5,400 for the first time since Lehman Brothers went bankrupt in September 2008.

The so-called "Santa rally" helped the benchmark to sustain a four-session winning streak, taking it up 30.03 points to 5,402.41 at the end of a shortened session.

The index had not risen to these levels since 12 September last year, the Friday before the US investment bank filed for bankruptcy, when the Footsie closed at 5,416.7. A bruising sell-off on Monday 15 September 2008 saw the blue-chip index slump to 5,204.2. On Christmas Eve, the mid-cap FTSE 250 index was also on firm footing, rising by 17.56 points to 9,211.95.

The move up came amid thin volumes, as most traders had already wound down for Christmas. Mining stocks, so often the driving force behind the Footsie, aided the advance, with Fresnillo, the Mexican silver producer, rallying by 45.5 points to 793.5p.

Persistent strength in metals prices, coupled with recent news of deal activity, supported sentiment, with Fresnillo saying on Wednesday that its Minera Penmont joint venture had made an offer to buy Canplats Resources Corp.

Rio Tinto, which closed 74p higher at 3370p, was just behind, while Xstrata gained 16.5p to 1088p and BHP Billiton rose 25p to 1970p. Kazakhmys was 16p stronger at 1288p, and Anglo American rose 29p to 2695p.

Oil and gas stocks were on form as crude prices extended gains on the back of a larger than expected drop in US oil inventories.

In the exploration and production sub-sector, Tullow Oil was among the leaders on the FTSE 100, rising 29p to 1298p, while Cairn Energy was 3.4p ahead at 328p. Of the majors, BG was 17p stronger at 1135p and BP gained 4.2p to 608.5p. Royal Dutch Shell was also firm, edging up 11p to 1908.5p.

In the banking sector, Royal Bank of Scotland led the way. The stock was 0.89p stronger at 29.3p following reports that Aberdeen Asset Management, the FTSE 250-listed fund manager, was interested in RBS's funds business. Reports suggested that the deal could yield up to £100m for RBS, which is majority owned by British taxpayers.

News of Aberdeen's interest came after the bank said last month it was selling its 51 per cent interest in the RBS Sempra, the commodities trading business. Aberdeen's shares fell 1.5p to 134.5p at Thursday's close.

Also on the upside, the temporary power provider Aggreko, which made its debut on the FTSE 100 recently, edged up by 1.5p to 910p after RBS analysts weighed in, reiterating their "buy" stance and upping their target price for the stock from 835p to 1000p.

"We believe Aggreko is more than just a cyclical play and is a real structural growth story, though its local business exposure offers a route to play a cyclical recovery," the broker said.

"Further catalysts in 2010 could come from the official renewal of the contracts in Kenya and the group bidding on projects in Bangladesh and some other African projects worth about 100 megawatts in the first half of 2010."

Elsewhere, the retail sector firmed up as the market pegged its hopes on strong Christmas trading, with factors such as tighter inventories and the reinstatement of the 17.5 per cent VAT rate on 1 January expected to boost sales on Britain's high streets over the new year.

The hopes were boosted by the news from the high street bellwether John Lewis, which posted a 27 per cent increase in year-on-year sales at its department stores for the four days to 23 December.

As a result, Kingfisher gained 3.5p to close at 225.2p, while the fashion retailer Next rose 14p to 2065p. Debenhams was 1.45p ahead at 79.95p, and the electricals retail group DSG International firmed up by 0.3p to end on 36.66p.

Further afield, Micro Focus International was 2.5p higher at 458.5p thanks to Panmure Gordon, which repeated its "buy" stance on the IT company's shares.

"In 2010, users will look to trade off business growth driving new application spend with the ongoing requirement of making efficiency gains in their existing applications portfolio. Micro Focus is a key beneficiary of both trends," the broker said, reiterating its 533p target price for the stock.

Benign broker sentiment also supported the gaming group 888 Holdings, which gained 0.8p to close at 111.4p after KBC Peel Hunt weighed in on the company's recent acquisition of Wink Bingo, saying the deal was "strategically sound and should enhance earnings in 2010 and beyond".

"The group has had a strong finish to 2009 both strategically and operationally. We expect 888 to achieve our 2009 expectations and feel that 2010 forecasts are also achievable," KBC said.

"The online gaming sector is likely to see significant consolidation in 2010 and markets such as France and Italy offer exciting growth prospects.

"Add this to potential positive legislation in the US then 888 does look good value. We expect [it] to play a part in sector consolidation."