LONDON (Reuters) - The leading share index rallied 3.5 percent on Tuesday as banks led gains after a raised offer for Bear Stearns from JPMorgan Chase & Co soothed market jitters about the embattled financial sector.
The FTSE 100 closed up 193.9 points at 5,689.1, despite a gauge of U.S. consumer confidence taking an unexpectedly sharp hit and dropping to a five-year low in March. European shares also finished the day sharply higher.
“Given the low level of visibility that still exists and obviously the high level of volatility ... I don’t think anybody can honestly say with their hand on their heart that we are over the worst,” said Jeremy Batstone-Carr, head of private client research at Charles Stanley.
“Perhaps in the second quarter of the year investors will begin meaningfully to take on more risk in anticipation of the trough of U.S. economic activity,” he said.
The UK benchmark index has shed nearly 12 percent so far this year on fears of a U.S. recession stemming from a meltdown in risky subprime mortgages, and is on track for its worst quarter since the third quarter of 2002 and its third straight quarter of losses.
Banks together added more than 54 points to the FTSE 100, with HBOS jumping almost 15 percent to lead the gainers’ list. Barclays, Royal Bank of Scotland, Lloyds TSB, and Standard Chartered were up between 6.3 and 9.3 percent.
Financial shares were boosted after JPMorgan lifted its offer for Bear Stearns to $10 a share from $2, signalling that valuations in the sector had been thrashed excessively.
Insurers Standard Life and Old Mutual rose 7.6 and 8.6 percent, respectively.
Yell Group, due for demotion to the mid-cap FTSE 250 on Wednesday after index compiler’s latest quarterly rejig, leapt 12 percent after shedding nearly 50 percent in value over the past four weeks.
Commodity shares were also in demand on a day when investors were chasing riskier assets. Oil major BP advanced 3.8 percent, while Royal Dutch Shell added 3 percent.
Among miners, Vedanta Resources climbed 7.5 percent, Xstrata gained 6.7 percent, Kazakhmys rose 7.5 percent and Anglo American tacked on 6.3 percent.
Index heavyweight Vodafone was up 1.7 percent. The Financial Times said the mobile phone giant was preparing for an IPO of shares in its Qatar subsidiary, with a sale of 20 percent of the shares expected before the end of 2008.
Missing out on the rally, however, shares in Wm Morrison Supermarkets lost 2.7 percent after Cazenove downgraded the stock to “in line” from “outperform”.
British American Tobacco and Imperial Tobacco shed 3.1 and 2.3 percent respectively, on weekend media reports of Britain considering banning cigarette displays to cut smoking and discourage children from starting, traders said.
Morgan Stanley urged investors to start buying into weakness in utilities and energy, which it expected to be defensive in the current bear market. It also added International Power, Tullow Oil, Pearson and HBOS to its model portfolio.
“Near term, we expect a meaningful bear market rally in equities, as recent policy initiatives are significant and are likely to stabilise credit markets,” the broker said in a note. “The policy initiatives are unlikely to prevent the earnings recession, though.”
Additional reporting by Rebekah Curtis; Editing by David Cowell