Eurozone solution hopes lifts City

SPECULATION that Germany and France are hatching a plan to increase Europe’s bailout fund helped the Footsie to make solid progress yesterday.

Reports suggested that the European Financial Stability Facility (EFSF) could increase to as much as €3 trillion (£2.6tn) from the current €440bn.

The FTSE 100 index closed 40.14 points higher at 5,450.49, a smidgen above a key technical support level at 5,450, above which it had only managed to close once since early August.

Renewed optimism surrounding the eurozone also triggered a better performance for European markets as traders shrugged off Moody’s downgrade of Spain’s credit rating.

Will Hedden, sales trader at IG Index, noted: “Downgrades don’t seem to inject the same fear that they used to and markets have not given too much thought to Moody’s double Spanish downgrade, but it is interesting to note the rise of the euro has been temporarily halted by reports that French president Sarkozy will make the short trip to Frankfurt to crack on with talks over the EFSF.”

The pound rose to $1.58 against the dollar after traders moved out of the safe-haven currency as global recession fears eased. Sterling rose to €1.14 versus the euro, as it was weakened by the Spanish downgrade.

News from Home Retail Group – which owns Argos and Homebase – revealed that falling sales of TVs and video game consoles had hammered profits dominated the retail sector. Profits at Argos fell 94 per cent to £3.4 million as the retailer put on discounts to drum-up trade.

Home Retail’s shares were 16.9 per cent or 20.2p lower at 99.5p in the FTSE 250, while the update caused top flight retail stocks, such as Marks & Spencer, Next and Tesco to tumble as well. M&S slid 0.5p at 328.9p, Next dropped 18p at 2,540p and Tesco shed 1.15p at 403.55p. Financial stocks offset the retail woe with gains for Lloyds Banking Group, up 1.09p to 33.15p, Royal Bank of Scotland ahead 0.73p at 24.47p and Barclays up 4.4p at 179.5p.

BSkyB was the biggest riser as first quarter figures showing a 32 per cent rise in operating profits to £327 million impressed analysts, despite a slowdown in the growth of TV subscriptions. With cross-selling of other products such as broadband boosting the performance, shares rose 5 per cent or 34.5p to 710p.

Among the Scottish stocks, Edinburgh-based Angel Biotechnology was up 7.4 per cent or 0.02p to 0.29p, two days after unveiling a joint venture with its biggest customer.

With about two billion shares issued, Angel is regularly returns one of the highest trading volumes on the Alternative Investment Market (Aim), with about 30 million shares changing hands yesterday.

Some 53 million shares in Bowleven, the Edinburgh-based oil explorer, were exchanged yesterday, making it the second-most traded stock on Aim. Bowleven closed down 4.8 per cent or 5.5p at 109.5p after unveiling a share placing at 103p.

At the other end of the volume scale, only about 9,700 shares in Edinburgh-based digital CCTV maker IndigoVision changed hands. The stock closed down 8.3 per cent or 17.5p at 192.5p. Small trades can have big effects on illiquid stocks.