Bounce back cannot hide volatility

Commodity stocks yesterday powered a bounce in Britain's top share index, as heavy selling this week made equities seem attractive on a technical level - but volatility looks set to persist.

The FTSE 100 index closed 97.88 points or 1.8 per cent higher at 5,696.11. The index had fallen in each of the previous six sessions and the index is still down 4.3 per cent this month, with political unrest and violence across the Arab World and Japan's nuclear crisis keeping investors fearful.

Neil Tong, head of UK equities at Dundee-based Alliance Trust, said: "Volatility is horrendous. There are a lot of unknowns, risks have gone up, the investment backdrop has deteriorated further and there are headwinds ahead in terms of oil and gas prices."

The FTSE 100 has had more than 50 billion wiped off its value in the slide since Japan suffered its devastating earthquake, which left the index looking oversold on a technical basis.

The index ended below its 200-day moving average around 5,611 on Wednesday and traders said other technical indicators pointed to the FTSE 100 looking cheap too.

In America, the Dow Jones Industrial Average gained 1.3 per cent in early trading after positive US economic news.

Indices across Europe staged a fight-back, with the Cac 40 in France up 2.4 per cent and Germany's Dax 2.2 per cent ahead.

Figures revealing a bigger-than-unexpected drop in US unemployment claims spurred on gains and helped the recovery.

Hopes of intervention to stabilise financial markets from G7 finance ministers, who have convened an emergency meeting, also boosted trader confidence.

The pound rose against the euro and the dollar, helped by a Bank of England survey showing inflation expectations at their highest for two years, which some took as further pressure to raise interest rates.

Stocks benefiting from the rebound included firms in the insurance sector as Aviva rose 15.8p to 437p and Prudential lifted 16.5p to 690p.

However, Legal & General eased back as the insurer failed to benefit from its announcement of a 24 per cent rise in its full-year dividend. Analysts praised its full-year results, which showed a 2 per cent rise in pre-tax profits, but shares were down by 0.4p to 110.7p.

Roofing and insulation specialist SIG jumped 8 per cent or 9.4p to 130.5p after it posted a 3 per cent improvement in underlying profits and said it planned to resume dividend payments later this year.

In a strong session for stocks in the FTSE 250 Index, Heritage Oil rose 8 per cent or 23.8p to 313.5p after the Financial Times said the explorer had received an informal takeover approach from a Middle Eastern firm.Heritage - which is focused on Africa, the Middle East and Russia - is understood to have rejected the offer worth 425p a share.

Glasgow-based engineering giant Weir Group was the best performer among the Scottish stocks, up 4.2 per cent at 1,606p, a rise of 65p.

The rise came as chairman Lord Smith of Kelvin bought 3,100 shares at 1,560p each, taking his total holding to 106,600. His fellow directors were awarded shares under the group's long-term incentive plan.