Banks lead nervous advance by Britain's FTSE

LONDON: Britain's top shares edged higher on Wednesday led by banks on bargain hunting, but the prevailing mood was cautious with some analysts and traders pessimistic about the long-term prospects for equities.

The FTSE 100 ended up 11.73 points, or 0.2 percent, at 5,870.14, helped by some sense of relief that there was no deterioration in UK gross domestic product figures. Darkening the mood were fears over euro zone debt.

"It seems that the main game in town is the European sovereign debt situation and in particular Greece," said Richard Hunter, head of UK equities at Hargreaves Lansdown.

"There seems to be an increasing acceptance that perhaps it's not been adequately dealt with by the IMF and the European powers, and until such time as the Greece situation is once and for all sorted out, it's difficult to see whether it could have a contagion effect."

The withdrawal of the U.S. Federal Reserve's second round of quantitative easing at the end of June alongside inflationary worries could also prove to be challenging for equity markets, he added.

British banks were among the top FTSE 100 performers, led by Barclays, up 2.3 percent, with Royal Bank of Scotland and Lloyds Banking Group climbing 2.1 percent and 2 percent respectively.

UK banks had come under pressure on Tuesday after credit rating agency Moody's said it might cut its rating on 14 British financial groups, including RBS and Lloyds.

Traders also noted continued support for commodity stocks on the back of positive comment on copper and oil from Goldman Sachs on Tuesday.

Antofagasta added 1.7 percent, with traders citing the impact of an upgrade in rating of the Chilean copper miner by Morgan Stanley to "equal-weight from "underweight" on valuation grounds.

Commodities trader Glencore, however, slipped 0.5 percent as the recently floated firm made its debut in the FTSE 100 index, following the start of unconditional trading in the stock on Tuesday, replacing Invensys.

Among individual movers, market heavyweight Vodafone shed 0.7 percent after Nomura cut its rating on the mobile telecoms firm to "neutral".

Private equity firm 3i Group was helped 1.5 percent higher as Evolution Securities lifted its rating for the stock to "buy", while Rexam firmed 1.5 percent after Credit Suisse hiked its target price for the drinks can maker.

Next, International Power and Amec all fell after going ex-dividend.

"There's not an awful lot to look forward to at the moment," said Yusuf Heusen, senior sales trader at IG Index.

"The way it's been going at the moment is that inflation's on an upward path, so if that kicks in in the middle of the summer, and if we have any more euro zone debt worries in the middle of June and July, then you could see the market come off quite hard."

Copyright Reuters, 2011