FTSE ignores forecast woes to surge

A late rally saw the FTSE 100 index close nearly 2 per cent higher – up 104.15 points at 5,363.71 – as traders also shrugged off a downgrade of Italy’s credit rating from Standard & Poor’s. The jump virtually erased Monday’s 108-point fall.

Traders are awaiting the outcome today of a key US Federal Reserve meeting, which could see the announcement of more stimulus measures, while optimism over a resolution to the Greek debt crisis has risen.

Will Hedden, sales trader at IG Index, said: “The rumour mill remains a major driver of trader sentiment, with equity markets carefully pricing in further Fed stimulus.”

Wall Street’s Dow Jones industrial average was 1 per cent ahead when the UK market closed as traders hope the Fed will announce more quantitative easing to boost the US economy, which is in danger of slipping back into recession.

The Dax in Germany and the CAC 40 in France were up 3 per cent and 1 per cent respectively, as European traders took cheer from the resilient performance on Wall Street.

There was renewed optimism that Greece will meet requirements to get its hands on its next tranche of bail-out money and avoid a default. It was hoped the Greek finance minister will convince officials from the European Commission, IMF and European Central Bank – collectively known as the “troika” – that the country will meet its strict budget targets.

The pound was still up against the weakened euro at €1.14, following the Italian debt downgrade. Sterling was also up against the dollar at $1.57.

Banking stocks benefited from the optimism over Greece, with HSBC up 9.7p at 520.9p, Lloyds ahead 0.8p at 34.2p and Barclays up 1.6p at 154.3p.

Defensive stocks were also in favour with GlaxoSmithKline up 28.5p at 1,333.5p, AstraZeneca 58.5p higher at 2,856p, and BAE Systems ahead 6.7p at 286.7p.

In the FTSE 250 index, Debenhams lost earlier gains even though the department store chain said it expected to beat market forecasts for full-year profits. The group reported like-for-like sales growth of 0.4 per cent in the nine weeks to 27 August, compared with a fall of 0.4 per cent over the previous 43 weeks. But shares were down 0.8p to 58.5p.

Bookmaker William Hill benefited after it confirmed it was in talks to potentially buy Aim-listed online gaming firm Probability. Shares in William Hill rose 0.4p to 228.2p. Probability shares, which rose 30 per cent on Monday, pared gains yesterday, dipping 1p at 64p, valuing the business at £17.2 million.

Among the Scottish stocks, Aberdeen-based geology consultancy Rock Solid Imaging was flat at 3.12p after chairman Peter Reilly bought 500,000 shares at 3p each to take his holding to 1.3 million and its finance director snapped up 100,000 shares at the same price to increase his stake to 325,000.

Fellow Granite City firm Faroe Petroleum fell 2.4 per cent or 3.75p to 153.25p despite the oil explorer posting a four-fold rise in interim turnover.