Britain's top share index closed marginally higher on Tuesday as UK insurer Resolution's bumper cash return helped boost insurance-related firms, while integrated oils weighed on the downside. The market reacted positively to Resolution's commitment to return 500 million pounds to investors.
"One would encourage share buybacks in a modest way because if a company is cancelling its shares and you remain a shareholder you would benefit from the earnings accretion," said Paul Mumford, who manages a 25-million-pound fund at Cavendish Asset Management. He said he would not be surprised to see more companies go down the same route given the low interest rate environment, cash-rich balance sheets and low valuations, but counselled businesses against gearing themselves up too highly to do so. Resolution, which rose 2.8 percent, also reassured shareholders by pledging not to use its own cash or tap investors to fund potential overseas acquisition projects.
Insurers Legal & General and Admiral gained 1.8 and 1.6 percent, respectively. The FTSE 100 closed up 1.49 points at 5,872.89, having edged 0.1 percent higher on Monday. The index fell 1.4 percent last week, as persistent worries over Europe's debt problems and global growth capped gains. "As long as the FTSE 100 can maintain above the 5800 level, which is a psychological support level and is where the FTSE's 200 day moving average resides, then investors may be enticed to buy into stocks that has lost value over the last few weeks," a London-based trader said.
Miners added the most points to the blue chip index, building on the previous session's gains. Bargain hunters moved in on Rio Tinto, up 1.2 percent, which has recently been trading below its 200-day moving average. Elsewhere, bank stocks were mixed, recovering some of their poise after a sell-off in the previous session. Lloyds Banking Group climbed 1.5 percent after being the biggest blue chip faller on Monday following downbeat comment from Chief Executive Antonio Horta-Osorio in an interview with the Financial Times.
Barclays shed 0.5 percent as J.P. Morgan reduced its target price on the UK bank and cut estimates for investment banks after weaker than expected second quarter results in the sector. The same broker, however, helped lift Weir Group 1.5 percent. J.P. Morgan Cazenove added the engineer to its "Analyst Conviction List" saying the firm's focus on shale gas opportunity should bring higher margins to justify a higher multiple.
Integrated oil stocks were the biggest weight on the London's blue chip index as the likes of BP suffered from the retreating oil price, which fell on concerns of a hike in Opec output. BP, down 0.6 percent, was also hindered by uncertainty over its stake in Russia's third-largest oil producer TNK BP. BP said it had no plans to sell the stake and its focus in Russia remained on developing TNK-BP. Whitbread was the top faller, off 1.8 percent, after Barclays Capital downgraded its rating for the leisure firm to "equal-weight".