FTSE rallies as hopes of Greek deal spurs banks

Financial stocks helped Britain's top share index climb on Tuesday as hopes of a resolution to Greece's debt problems spurred appetite for riskier assets. Banks were in demand, led by part state-owned Royal Bank of Scotland as investors bet the Greek parliament will this week vote through austerity measures needed to secure more aid from international lenders, despite violent protests in Athens. RBS was up 4.2 percent following recent underperformance.
"No doubt this is a relief rally on anticipation of a yes vote in Greece which we think is likely, and/or a UK ascent to roll over of Greek debt," a trader said. Hopes of a positive solution were also boosted as German banks moved closer to participating in a Greek bailout.
A trading update from Standard Chartered, up 2.7 percent, also improved appetite among investors for banks, which have been under pressure on concerns over their potential exposure to the European debt crisis. "It's a very positive statement," said Mike Trippitt, analyst at Oriel Securities in London, referring to Standard Chartered's update.
"An improvement on the Q1 stage, as they've clearly improved the situation on the cost to income line," he said, keeping a "buy" stance on the Asia-focused bank. The FTSE 100 index closed 44.54 points, or 0.8 percent, higher at 5,766.88, adding to Monday's 0.4 percent advance. London's blue chip index retreated from a high of 5,795.10, however, as uncertainty lingered over the health of the world's biggest economy as a moderation in the decline of US house prices was offset by gloomy consumer confidence figures.
Commodity issues tracked the prices of base metals and Brent crude higher, helped by a weaker dollar as hopes that Greece could avoid a debt default held sway. Miner Vedanta Resources gained 3.5 percent helped by late news on Monday that its long-delayed deal to buy a 40 percent stake in Cairn India got a boost as vendor Cairn Energy cut the price tag and split the sale into two tranches.
Cairn Energy shares rose 3 percent. "Read-through valuation reduces from 376 pence to 348 pence (on Cairn), although we envisage a positive reaction given the visibility on cash proceeds and likely GoI approval for the deal in the near-term," Phil Corbett, analyst at RBS said.
Blue chip utilities rose after Hong Kong billionaire Li Ka-shing's Cheung Kong Infrastructure Holdings (CKI) said late on Monday it was considering a bid for mid-cap Northumbrian Water. Severn Trent and United Utilities rose 2.3 percent and 0.9 percent respectively.
Evolution Securities upgraded its rating for Severn Trent to "add" and raised its target price for United Utilities. On the downside, Tate and Lyle fell 1.8 percent, topping the list of UK blue chip fallers as RBS cut its rating on the sweetener and starches maker to "hold" from "buy" on valuation grounds.
Telecoms firm BT Group was a top faller, down 1.7 percent after FTSE 250 peer Cable & Wireless, down 13.9 percent, issued another profit warning, which prompted Chief Executive Jim Marsh to resign. Mid-cap car parts retailer Halfords shed 2.9 percent with traders citing a read-across from Dutch navigation products company TomTom which issued a profit warning.