LONDON: Banks led Britain's top share index higher on Wednesday, echoing strong overnight gains on Wall Street, with Lloyds Banking Group outperforming on the back of a double upgrade from Exane BNP Paribas.
London's blue chips rose 28.27 points, or 0.5 percent to 5,447.87 by 0854 GMT, extending the previous session's 1.0 percent rise, as the index continued its bounce off the support level of around 5,340 -- its 100-day moving average -- but analysts are yet to be convinced of the sustainability of recent gains.
"Traders are probably going to want to see a push back through the 50-day moving average, at 5,450 or so, before they are convinced that this is more than another flash of volatility," Bill McNamara, technical analyst at Charles Stanley, said.
Previously beaten down banks led the risers with Lloyds Banking Group up 4.3 percent as Exane BNP Paribas upgraded the UK lender to "outperform" from "underperform" on valuation grounds.
"Trading at 0.4 times 2013 tangible book, the current share price appears to imply little or no franchise value for the 'Core' business," Exane said in a note.
"If economic conditions stabilise and Lloyds Banking Group is able to avoid raising capital then valuation of the 'Core' business starts to look highly compelling," it said, adding there is potentially 65 percent upside to the current share price.
That had a positive readacross for the rest of the UK-listed banks, with Barclays and Royal Bank of Scotland bouncing more than 3.5 percent each.
The sector was also boosted ahead of the European Central Bank's first ever offer of three-year loans which is expected to draw high demand from banks on Wednesday, easing fears of an impending credit crunch and possibly bolstering bond and money markets.
"It seems that the ECB's tactic of providing unlimited 3 year loans to banks is finally having a positive impact on both credit and equity markets," a London-based trader said.
"This has permeated confidence throughout the markets and lowered Italy's and Spain's borrowing costs to a more manageable level."
With risk appetite back on for the time being, equities such as integrated oils and miners rallied too.
Lingering concerns over the outlook, however, blighted the sector after British chocolatier Thorntons, down more than 30 percent, issued a profit warning.
"Christmas, although lacking in cheer for the retailers, might not be quite as bad as expected despite a significant number of profit warnings, subdued sales following unusually warm autumn weather and heavier discounting," Freddie George, analyst at Seymour Pierce, said.
"Post-Christmas, however, we do not expect to see a 2008 rebound in sales. We thus remain cautious on the General Retailers and maintain that it is still too early to buy the sector."
The main domestic macroeconomic focus on Wednesday will be on minutes from the December Bank of England MPC meeting, due at 0930 GMT, with UK November public sector borrowing figures also scheduled for release at 0930 GMT.
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