Crude oil surge pushes FTSE up

LONDON FTSE 100 CLOSE 5,538.07 +3.83

OIL drove the FTSE 100 higher yesterday as the price of crude rose to its highest level in more than a year and analysts predicted the surge would continue.

Crude oil traded above $83 a barrel on reports of a surge in imports to China last month, and after Citigroup raised its forecasts over the next five years.

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Cairn Energy led the Footsie in early trading as Citigroup increased its target price on the Edinburgh-based oil explorer by more than 50 per cent to 420p.

Shares in Cairn rose more than 3 per cent in opening trade before closing up 2.3 per cent at 370.3p.

Oil giant BP also climbed after analysts at both HSBC and Citi increased their target prices on the shares. BP closed up 13.8p, or 2.2 per cent, at 635.5p.

The FTSE 100 index rose more than 50 points in early trading, before easing to close just 3.83 points higher at 5,538.07.

Dragon Oil, the Irish company which also trades in London, continues to rally just weeks after Scottish fund manager Baillie Gifford helped scupper an agreed takeover.

Yesterday's rise was driven by a note from analysts at Merrill Lynch, who slapped a "buy" recommendation on the shares, with a target price of 580p, a 27 per cent premium to the 455p level rejected by Baillie Gifford. Analyst Taleh Musayev argued that if a bidding war began, the price could reach 900p.

Shares in Dragon – which has extensive production in the Caspian Sea – plunged to 375p when Emirates National Oil Company's attempt to takeover the company failed last month, but closed up 3.7 per cent at 430p last night.

Elsewhere, the property sector rose after analysts at Goldman Sachs recommended buying shares in companies with exposure to the London office space market.

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Land Securities was the top blue-chip gainer, rising 19p to 683p, while British Land gained 12p to 473.4p, despite its shares trading without rights to its latest dividend for the first time.

Retailers, hit last week by recessionary fears, were in demand, buoyed by positive festive trading updates from both the Co-op and House of Fraser.

Marks & Spencer has been on the back foot in recent days, but rose 8.6p to 375p, while B&Q owner Kingfisher climbed 5.2p to 230.8p and Argos owner Home Retail Group rose 4.7p to 283.6p, ahead of its own trading update on Thursday.

Among the insurers, there were rumours of a major deal in Europe, with reports that Germany's Allianz is preparing a takeover of Swiss Life, Switzerland's largest insurer.

In Zurich, Swiss Life rose eight Swiss francs to 152.70 francs on the news, its biggest rise in ten months.

The news failed to set the UK sector in motion, with Legal & General among the biggest fallers in the top flight, closing 1.75p lower at 82.55p. Edinburgh-based Standard Life eased 2.8p to 211.1p, while Prudential dropped 12p to 626.5p.

Among the midcaps, Aberdeen Asset Management rose 0.1p to 134.1p as analysts argued over the merits of its acquisition of assets from the fund management business of Royal Bank of Scotland after the deal was confirmed on Friday.

Canaccord Adams cut its target price on AAM by 4p to 158p, while Numis upped its rating on the shares from "add" to "buy".

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Forth Ports ticked up 13p to 1,170p, as brokerage UBS raised its target price on the shares by 150p to 1,150p.

On Aim, Edinburgh-based Angel Biotechnology rose 7.4 per cent to 0.29p after announcing the first contract from a recent agreement with Materia Medica, a Russian pharmaceutical group.