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FTSE hits highest close this year as banks rally

LONDON: Britain's FTSE 100 surged to its highest close of the year on Friday as swirling bid rumours stirred up the banking sector and telecoms stocks continued to march ahead.

Posting its second biggest points gain in 2000, the FTSE 100 closed up 143.9 points or 2.2 percent at 6,738.5. Advancing issues stifled decliners more than five to one, while trading volume ticked up to a moderate 1.7 billion shares during official hours.

Insurance group Sun Life & Provincial was undoubted star of the show, leaping around 40 percent after France's AXA said it had begun talks to buy out the minority shareholders who own the 43.7 percent of Sun Life which AXA does not already hold.

But on a sector view banking and telecom stocks formed the backbone of the performance, adding 38 FTSE points apiece.

The blue chip UK index chalked up a session peak of 6,755.1 in mid-afternoon, putting it within 200 points of its previous intraday record of 6,950.6 scored on the final session of 1999.

And strategists said the FTSE was destined to scale new peaks in the very near term, especially with the recently disfavoured banking stocks showing seemingly unstoppable upward momentum.

"The banks in particular have broken the 'old economy' downtrend," said Omar Sheikh, head of research at broker Charles Stanley. "Abbey National Barclays -- they're all going back up with an implied upside of around 15 percent," he said, noting that this alone would be enough to lift the FTSE into the record books.

Scanning back over the last month, Sheikh noted the top performing sectors were pharmaceuticals, telecoms and leisure, while bucking the trend of the last six months, IT and hardware stocks underperformed and software stocks -- the investor darlings of 1999 -- as a group have actually backtracked.

"Looking ahead, the burning question has got to be: "Is this the top for technology?" The pure tech plays are now underperforming, and some brokers are saying valuations have got to a point where the level of momentum over the last six months won't be replicated," Sheikh said. Abbey National led the banking charge with an eight percent gain on heavy volume of more than 16 million shares traded.

But the others were not far behind -- Barclays up 5.3 percent, Lloyds five percent and Royal Bank of Scotland up 5.9 to name but a few -- as the market juggled with a number of rumoured merger combinations.

Barclays and Abbey National, Lloyds and Abbey National or Lloyds and Bank of Scotland were among the less outrageous rumours on trader's lips.

"If everything I've heard in the banking sector today came true there would be nothing left by Monday because everything would have been bid for," one dealer said.

A more prosaic reason for the sharp increases was the concerted switch into the undervalued sector over the last two weeks, as well as a fine lead by banking stocks in the U.S. market, another dealer suggested.

In the other sector of the day -- the telecoms -- cable group Telewest Communications rang up gains of 12.5 percent after a slew of analyst upgrades. Colt Telecom rose 9.6 percent while Kingston bounced 8.9 percent.

Meanwhile Freeserve closed up 16 percent amid rumours it was on the bid menu of another Internet service provider, although newly floated World Online tipped as a bidder, ruled itself out. With just 16 blue chip fallers on the day, casualties were few and far between. Airports operator BAA was the heaviest faller in the FTSE 100, down 5.4 percent -- a minimal decline in today's highly volatile market.

Instead, sadistic observers had to turn to the FTSE 250 where computer games maker Eidos stable of the sepulchral warrior maiden Lara Croft, crashed 38 percent after the company warned it would be hit hard by the transition to the new generation of gaming platforms.

Eidos shares, which peaked at over 13 pounds in December, slid 228-1/2 pence to 375p by the close.

On a more positive note in the mid-caps, online auction house QXL.com topped the bill with a 36 percent gain after reports that U.S.-based peer Ebay and leading Internet portal Yahoo! had resumed merger talks.

QXL's gains helped lift the FTSE midcap index 0.9 percent by the close to 6,564.2, while the Small cap index was the worst performing UK index, gaining only 0.2 percent.-Reuters