FTSE puts on 3% as credit bail-out gives markets hope

Apr 19 2008

The FTSE 100 Index gained almost 3% this week as hopes of a credit bail-out for the banking sector and better than expected corporate results on both sides of the Atlantic boosted stocks.

A possible Treasury-backed plan for banks to swap their riskier assets for Government bonds prompted hopes of an end to a lingering credit crunch.

Strong results from grocery giant Tesco, as well as better than fear results from US banking giants such as Citigroup and Merrill Lynch, saw the Footsie gain 161 points over the week to close at 6056.5.

Tesco confounded the critics suggesting its stellar run could come to an end after unveiling an 11% rise in annual profits to £2.85 billion on Tuesday.

Concerns over heightened competition and the performance of its fledgling US venture Fresh & Easy were put aside as the Cheshunt-based business reported UK like-for like sales growth of more than 4% in the first weeks of the new financial year.

Bullish Tesco boss Sir Terry Leahy said the company was well placed to benefit from a downturn as consumers looked for better value. Shares finished the week 6% higher at 410.25p.

The UK’s second biggest bank, Royal Bank of Scotland, was at the centre of reports on Friday that it would turn to shareholders for more funds in a multi-billion rights issue next week.

There have been concerns over the bank’s balance sheet following the RBS-led consortium’s £49 billion deal to buy Dutch bank ABN Amro last year, as well as the bank’s write-downs on mortgage-backed investments since the credit crunch.

Rights issues are rarely cause for celebration among investors but reports of the bank’s likely move caused a rally on Friday as shareholders welcomed an end to uncertainty over its capital position. RBS finished the week 7% ahead at 384p.

The current turmoil may be bad news for banks but credit checking agency Experian has gained as companies become more careful about lending.

The Nottingham-based group said on Wednesday that lower demand for information from banks and other lenders had been offset by work from businesses trying to get more accurate customer data during the tougher environment.

Its overall like-for-like revenues growth of 2% during the six months to March 31 was ahead of City forecasts. The company finished the week at 395p, a gain of 11%.

The UK’s biggest housebuilder, however, endured contrasting fortunes after a downbeat trading update on Thursday.

Taylor Wimpey - relegated from the FTSE 100 Index last month after the cooling housing market hammered its share price - said sales had deteriorated since March’s results as dearer mortgages deter buyers.

The company said orders since the beginning of the year were down 26% and the “subdued” conditions were likely to continue. Taylor Wimpey slipped 4% over the week to 159p.