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FTSE extends gains, eyes on stimulus action

LONDON - Britain’s top share index hit new two-month highs on Tuesday, modestly extending two sessions of gains, as investors bet on fresh economic stimulus after surprise action from a recent EU summit to tackle the festering euro zone debt crisis.

Miners provided the main support to the blue chips, bolstered by prospects of rising global demand for resources on the back of central banks’ monetary easing. The top performer was Vedanta Resources, surging 4.5 percent.

At 1045 GMT, the FTSE 100 was up 13.79 points, or 0.2 percent, at 5,654.43, testing levels not seen since early May. About half way through the session, trading volume was at 23.8 percent of the 90 day daily average.

“It is encouraging that we are above the June high. In the near term, it should be good to retest the 5,700 area,” said Phil Roberts, chief European technical strategist at Barclays.

“It is a little bit disappointing that the volumes were quite low and because of that, you got to be a little bit aware of getting too bullish just yet,” he added.

A recent raft of weak US and European macro data has raised investors’ expectation that central banks will soon take fresh policy action to stimulate economies.

The market is now focusing on European Central Bank meeting on Thursday, with many economists expecting a cut in interest rates to 0.75 percent from 1.0 percent, as a follow-through action to the EU summit measures, which should further boost equities.

The Bank of England (BoE) is also widely seen launching a third round of gilt purchases this week to save the economy from a second recession in four years.

Britain reported stronger-than-expected data for consumer lending and mortgage approvals in May, but investors see these figures as unlikely to shift BoE’s monetary easing stance.

Investors are also awaiting for US May factory orders, which is due at 1400 GMT, and the Institute of Supply Management New York will release its index of regional business activity at 1345 GMT.

US futures pointed to a broadly flat start on Wall Street on Tuesday, reflecting lingering concerns on the outlook of the world’s largest economy, though some economists argued that the chances are rising of seeing positive surprises in U.S. data.

Barclays was volatile, recovering from an opening drop to rise 3.4 percent after its CEO Bob Diamond quit with immediate effect on Tuesday over an interest rate-rigging scandal, becoming the highest-profile victim so far in a probe that spans a dozen major banks across the world.