US jobless dip gives Footsie a boost

London's Footsie hit a four-month closing high last night as weekly unemployment figures in the United States fell more than expected, easing concerns of the world's largest economy falling back into recession.

LONDON FTSE 100 CLOSE 5,494.16 +64.42

Economy-sensitive banks were among the top gainers, also helped by expectations that the new Basel III capital rules, expected to be detailed on Sunday, will not be as tough as feared.

The FTSE 100 index climbed 64.42 points or 1.2 per cent to 5,494.16, overcoming wobbles earlier this week on nerves over Europe's sovereign debt crisis and the shock of two high-profile leadership changes at blue chip banks.

The index had hit an intra-day high of 5,505.66 - the first time it had traded above the 5,500-level since 4 May.

America's Dow Jones Industrial Average was up in early trading as investor sentiment received a boost from news of the drop in US jobless claims.

The US commerce department also revealed a sharp contraction in the country's trade deficit in July. But figures on the UK trade deficit were dire by contrast, hitting the worst level on record, but this failed to hold back progress on the Footsie.

The trade disappointment saw sterling edge lower against most major currencies, down 0.1 per cent to $1.54.

A predicted hold on interest rates by the Bank of England added to the pressure on the pound. Policymakers kept rates at 0.5 per cent for the 18th month in a row and also continued with the Bank's 200 billion quantitative easing programme.

Barclays and HSBC were both in positive territory as investors came to terms with the changes at the top announced earlier this week.

Barclays lifted 15.4p to 323.4p as concerns faded over the appointment of Bob Diamond as chief executive.

HSBC also turned in a better performance after Tuesday's announcement that chairman Stephen Green is leaving the bank to become a trade minister, with shares lifting 6.8p to 661.6p.

Progress in the Footsie came despite a poor performance from retail stocks after major players including Argos owner Home Retail Group, music retailer HMV and supermarket Morrisons highlighted softer consumer confidence.

Home Retail led the fallers board in London as it warned full-year profits were likely to be towards the bottom end of market expectations.

While it said Argos and DIY chain Homebase performed well in testing conditions, like-for-like sales for both divisions were still lower in the six months to 28 August. Shares slipped 3 per cent, or 6.2p, to 215.2p.

Morrisons warned it expected the recent low growth in like-for-like sales rates to continue. Underlying profits lifted 14 per cent at the half-year stage but shares failed to respond, ending unchanged at 292.5p,

Outside the top flight, HMV shares fell more than 10 per cent, or 7.3p, to 59.3p after it said first-quarter like-for-like sales in the UK and Ireland dropped 14.9 per cent. It blamed the impact of the World Cup on the pipeline of new releases.

Commodity stocks bounced back after Wednesday's fall in commodity prices. Among them, Vedanta Resources lifted 66p to 2,038p.