London investors await critical EU summit

The British stock market, fresh from a massive rebound, will next week focus on a vital EU summit where leaders will aim to resolve the eurozone sovereign debt crisis. And the Bank of England will deliver its latest monetary policy decisions on Thursday, after taking part this week in a joint action by six central banks to pump liquidity into the financial system and avert a credit squeeze.
Although not a member of the eurozone, Britain is a key trading partner of the neighbouring bloc. London's FTSE 100 index of top shares closed at 5,552.29 points on Friday, up 7.51 percent from a week earlier.
Equities were boosted by the surprise central bank action and as German Chancellor Angela Merkel called for a closer "fiscal union" in Europe ahead of the pivotal EU summit on December 8-9.
The FTSE index, whose 100 tracked companies include HSBC bank, oil giant BP and telecoms group Vodafone, had lost 3.70 percent the previous week on the back of rising eurozone debt tensions.
Next week, all 27 European leaders will meet in Brussels for an eagerly-awaited EU summit that has been billed as their last chance to restore the credibility of eurozone economic governance.
"The event of next week is likely to be the EU leaders' summit," said Investec economist Victoria Cadman.
"At the end of the week, leaders really will need to be able to show a bazooka solution, with enough detail, and enough firepower, to succeed in stemming the tide of market contagion.
"No doubt, there will be details to be sewn up afterwards, but it must be clear that the funding of that solution can work and that the International Monetary Fund is firmly on board.
"We are nervous that this much can be achieved within a week, despite the behind the scenes discussion that appears to have been ramping up ahead of this meeting," she added.
Aside from the eurozone drama, London investors are eagerly awaiting the Bank of England meeting, which could see the BoE increase the size of its asset purchasing programme in the face of increasing economic turmoil.
Back in October, the British central bank announced plans to increase its so-called quantitative easing stimulus policy, as Britain struggles to ensure economic recovery amid the eurozone debt crisis.
QE is a process whereby central banks create new cash which is then used to purchase assets such as government and corporate bonds in the hope of giving a boost to lending and economic growth. It amounts to magnetising debt.
The BoE this week warned that British banks were facing an "exceptionally threatening environment" as a result of the eurozone crisis, and called on lenders to increase capital levels in order to weather any future storm.