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Rallying banks lead modest FTSE 100 bounce

LONDON - A rally by recently hard-pressed banking stocks led a bounce back by Britain’s top share index on Wednesday, snapping a four-session losing streak, although low volumes indicated some fragility ahead of another key EU summit.

At 1037 GMT, the FTSE 100 index was up 23.94 points, or 0.4 percent, at 5,470.90 points, with trading volume at just 19 percent of the 90-day daily average.

The UK blue chip index has been stuck in a tight trading range at around 5,435-5,514 points since the start of the week, but is down some 3 percent from a peak of just under 5,624 points on June 20 - indicating a broader downwards trend.

“A few brave souls have edged into the market this morning, but enthusiasm is distinctly lacking, as most traders opt to hold their ground and wait to see what decisions, if any, emerge from the eurozone summit this week,” said Chris Beauchamp, Market Analyst at IG Index.

Hopes of the summit yielding any solution to the euro zone debt crisis were very low, however, after German Chancellor Angela Merkel flatly rejected the idea of common euro zone bonds, even though European Council President Herman Van Rompuy on Tuesday put forward the case for them.

“In a way, it would be hard to lower expectations any further, since we have been here many times before, but there is a sense that this time the fallout from any apparent lack of progress will be severe,” IG’s Beauchamp added.

Banks were the best blue chip performers, bouncing back after sharp recent falls, led by Lloyds up 2.4 percent.

Fledgling banking venture NBNK said it had made a new proposal to buy 632 branches from the bank ahead of a scheduled Lloyds board meeting later on Wednesday.

Lloyds must sell the branches under European State Aid laws and had said it would update shareholders on the process by the end of this week. The Co-operative Group remains its preferred bidder.

Miners dented

Miners were the biggest drag on blue chip sentiment, tracking a fall by copper prices on growing concern over the demand outlook for metals due to global growth uncertainties and the impact of the euro zone debt crisis.

Commodities trader Glencore was a big blue chip faller, down 3.9 percent as doubts about its planned $26 billion takeover of Xstrata were sparked by Qatar’s sovereign wealth fund - Xstrata’s second-largest shareholder - asking for better terms at nearly the last minute.

Xstrata shed 1.6 percent as shareholders fretted over whether or not Glencore would consider changing some of the terms of the deal.

“I would be looking to buy Xstrata stock on weakness this morning. I don’t personally believe that Glencore will walk away,” said Securequity sales trader Jawaid Afsar.

US stock index futures pointed to a flat open on Wall Street on Wednesday, after a rally in the previous session, with investors awaiting May durable goods orders, due at 1230 GMT, and pending home sales for May, due at 1400 GMT, for clues as to the health of the US economy.

“Investors would be wise not to misinterpret the current market pause as a sign that some stability has returned. In fact, there will be extremely important issues in play over the next few days, with the outcome of the EU Summit potentially providing the longer term investor with useful indications about the direction of European integration,” said Andrew Milligan, Head of Global Strategy at Standard Life Investments in a note.

“Conversely, failure to reassure global investors on the Euro-zone’s future plans could have very serious consequences, plunging markets back into the difficulties witnessed in recent months,” Milligan added.