Market Report: French and German news lifts Footsie

The FTSE 100 climbed for a fifth consecutive day yesterday, extending the market's largest weekly gain for almost a year. Investors seized on positive economic data coming out of France and Germany lifting the markets through the 5,800 barrier.

Xstrata shares reached a two-month high after the mining group revealed that construction of a production line at its Koniambo nickel project was complete.

The company, which had a £56bn merger with Glencore approved this week, saw its shares rise 6p to £10.20. The first molten metal from Koniambo is expected to be produced before the end of the year.

Overall, the blue-chip index rose 28.11 points – or 0.5 per cent – to 5,819.14, a 3.8 per cent weekly rise. Experts said market sentiment had been boosted by short-term political and economic factors, despite talks on a new European Union budget collapsing yesterday.

David Madden, market analyst at IG, said: "Strong German business data led equities higher and after a few hours tip-toeing around the 5,800 level traders managed to bulldoze their way through it.

"Greece remains in the frame; talks are moving in the right direction but the IMF (International Monetary Fund) is still holding out on the next tranche until the country can fill in the €10bn (£8bn) funding gap. Nobody expects the talks to be a piece of cake but very few think the Troika will allow the country to go bust."

Brewer SAB Miller continued to fizz after strong, first-half results on Thursday. Shares in the company closed up 33p at £28.34 as Deutsche Bank, JP Morgan, Nomura and Société Générale raised their price targets for the stock.

Kingfisher – the owner of B&Q – rose 3.7p to 280.7p ahead of third-quarter results next week. Thomas Cook, which will also report next week, also rose 1p to 24p as Investec raised its price target on the company's shares by 60 per cent to 40p and reiterated its "buy" recommendation on the stock. The news was a blow to short-sellers who have taken a bet on the company's shares falling. According to recent data from Markit, 8.9 per cent of the company's shares are out on loan to short-sellers.

Elsewhere, Melrose, an investment group which buys underperforming manufacturers, recovered yesterday after a profits warning last Friday. Shares in the company rose 1.3p to 216.3p as Legal & General and Blackrock increasing their holdings in the group.

At the other end of the scale, Morrisons, which has been campaigning for longer trading hours over Christmas, dipped 1.7p to 261.7p.

Among mid-caps, precious metals miner Hochschild fell 11.8p to 475.5p after warning of delays to two projects in Peru. The Latin American-focused group said work on the projects was now unlikely to start until the second half of 2014.

However, TalkTalk rose 3p to 211p after an upgrade from Berenberg, which lifted its rating on the telecoms group from "hold" to "buy".

Desire Petroleum continued to attract investors despite threats from Cristina Kirchner.Argentina's short-tempered president has threatened to take legal action against companies hunting for oil and gas near the Falkland Islands, and other members of her government have described the practice as "illicit".

This hasn't stopped investors from taking a punt on explorers such as Desire, which rose by more than 1 per cent after a report found that it had "excellent exploration potential" in the region.

Desire shares climbed to 20.25p after the company said the findings of the independent report rated its chances of commercial success at the Sea Lion complex in the North Falkland basin at 80 per cent.

Brokers at Seymour Pierce maintained a "buy" on the stock but warned the company still faced considerable challenges if it wanted to hit the jackpot.

"Although we expect the share price to strengthen on the back of the resource upgrade, Desire requires considerable funding to prove up these assets," they added.

Looking ahead to next week, Ishaq Siddiqi, market strategist at ETX Capital said: "After this week and last week's failure by EU leaders to reach an agreement on unlocking Greek bailout funds, markets will be less forgiving and expect risk assets to retrace this week's gains if Greece doesn't get the funds it so desperately needs next week. That said, traders are currently adopting a cautiously optimistic stance and it is likely the final agreement will involve a haircut on Greek debt but in a different way, ie buying and cancelling Greek debt on the secondary."

Desire shares eventually settled at 20.25p.

Buy

Direct Line

Royal Bank of Scotland raised £787m when it listed the home and motor insurer Direct Line on the London Stock Exchange in October. Investec certainly likes what it sees, having initiated coverage on the company with a "buy" rating and a 210p target price. Kevin Ryan, analyst at the broker, described Direct Line as a "unique business". The company has a 19 per cent share of the motor market and also owns Green Flag, the UK's third largest roadside rescue business. Investec believes Direct Line's management has "clear aims", including a 98 per cent combined ratio and £100m in savings by the end of 2014.

Buy

Beowulf Mining

Beowulf is currently exploring iron ore and copper-gold projects in Sweden, which is reckoned to be one of the most supportive jurisdictions in the world for mining and Europe's largest producer of iron ore.

Analysts at Seymour Pierce said the company's flagship iron project in Kallak has the "potential to be expanded significantly and sits close to excellent infrastructure". The company has £4m of cash available and the stock has decent short-term momentum, the broker adds.

Buy

Capita

Oriel Securities is bullish on the support services group Capita, which was selected as the preferred bidder for Barnet Council's back office support contract on Thursday. The broker says this is a "notable feather in the group's cap". The contract has a value of £320m over 10 years and is expected to start next April. The win followed on from an announcement on Wednesday about another contract win in Northern Ireland, which has a value of £665m over five years. Oriel believes these two contracts will provide 1 per cent of organic revnenue a year for the company. "Undoubtedly it was a good couple of days for Capita," it added.

Hold

Fuller Smith & Turner

The brewer Fuller, Smith & Turner was boosted by the acquisition of new pubs during the six months ending September as revenues rose 8 per cent despite poor summer weather. The company also hailed the effect the Olympics had on the company, yet analysts at Panmure Gordon believe rival Young's is a better investment for those seeking exposure to London and the South-east.