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Fri close: Merger talk and deficit data lift stocks

Traders went into the Bank Holiday weekend on a two-week high, chasing up heavyweights Vodafone and HSBC as well as defensive categories such as pharmaceuticals.

While Europe continued to fret about Greece, and Wall Street opened in the red on speculation surrounding interest rates, London gave the FTSE 100 a boost.

The leading index rose 18.25 points (+0.26%) to close at 7,031.72, its highest since 8 May.

US stocks were hit by data showing that US consumer price inflation picked up to its highest since January 2013, raising concerns that the Federal Reserve may move sooner than expected to tighten monetary policy.

At home,  Chancellor George Osborne received some positive news ahead of his July Budget as new figures showed the UK deficit narrowed. Public sector net borrowing excluding state-controlled banks fell 27% from a year earlier to £6.8 billion, compared with economists’ expectations for a shortfall of £8.1bn, thanks to stronger tax receipts.

Corporate news was led by Vodafone which continued to rise on speculation over a merger or partial take over by Liberty Global. Shares in the British mobile operator hit a 14-year high.

HSBC was up after confirming rumours that it is looking at a possible disposal of its Brazilian operations, though it has not yet made a decision. Recent reports suggested that Banco Santander’s Brazilian unit could be a buyer.

Defensive sectors such as pharmaceuticals, beverages and tobacco performed well. Glaxosmithkline, Astrazeneca, SABMiller, Diageo, British American Tobacco and Imperial Tobacco all finished in positive territory.

Electronics retailer Dixons Carphone rose 1.4% and housebuilder Travis Perkins was up%, as they benefited from upgrades to target prices from Deutsche Bank and Jefferies respectively.

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