FTSE rallies as investors eye cheap stocks

boosting commodity stocks and banking shares.
“What is pushing up stock prices is not renewed bullishness, but investors looking to make a quick buck and picking up stocks in the short term expecting a quick bounce,” said Giles Watts, head of equities at City Index.

“Much of the buys we have taken this morning have been based on short-term contracts.”
The UK’s benchmark index was up 78,64 points, or 1,5 percent, at 5 181,22, having shed nearly 6 percent in the last two trading days in response to poor jobs data from the United States, downbeat global PMI economic data and worries over the European sovereign debt crisis.

Beaten down mining and integrated oil stocks, which are experiencing their worst year since 2008, the year Lehman Brothers collapsed, were higher.
Global miners Rio Tinto and Xstrata added 2,4 and 2 percent, while oil major BP rose 2 percent.

Integrated oils are trading on a one-year forward price earnings of 7,2 times compared with their five-year average of 9,6 times, according to Thomson Reuters data.
Goldman Sachs said despite the near-term risks it still believed the UK market offered value.
“In order to justify current prices you need to have a pretty pessimistic view of long-term returns and growth; we reckon the market is priced for something like only 1 percent (per annum) long-term dividend growth and a fall in return on equity to below the long-term average.”

Investors continued to reward companies that are managing to maintain growth in an austere environment.
British industrial equipment hire firm Ashtead jumped 17,6 percent after forecasting “substantially” better full-year results after booming business in its core US market.

And Britain’s biggest hotel and coffee-shop operator Whitbread Plc climbed 7,2 percent after it reported accelerating growth in quarterly sales.
Banks, which trade on a one-year price earnings multiple of 7,3 against a five-year average of 11,87, also rose, though traders remained sceptical about how long gains could be maintained against the economic backdrop.

JP Morgan’s banking chief executive said at the Banks in Transition conference in Frankfurt that only when Europe decides how it wants to move forward on its debt crisis would markets stabilise.
City Index’s Watts said: “Given the sovereign debt problems and the political moves that we are watching this week, including the contentious budget debate in the Italian Senate and Greek talks with the Troika to secure their next tranche of bailout loans, any stock market rally could be short lived.”

Retailers underperformed the broader market as Citigroup downgraded its rating on the sector to “neutral” and cut its earnings forecast for retail stocks in light of recent gloomy economic indicators.
Marks & Spencer was flat as the broker cut its recommendation on the high street retailer to “hold”, while Kingfisher was down 0,2 percent as Citigroup cut its target price. – Reuters.