Britain's Share Index Rallies In Early Trading

Britain's Share Index Rallies
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REUTERS -- Britain's top share index climbed in early trade on Thursday as bargain hunters scared off in the previous session by worries over French banks and European debt contagion drove what analysts said might be a short-lived rally.

The UK benchmark index was up 77.36 points or 1.5 percent at 5,084.52 by 0734 GMT, having closed down 3.1 percent, on Wednesday, its lowest finish since July 6, 2010. The index fell back on Wednesday after hitting an intra-session high of 5,262.72.

"Such price action shows that no clear bottom has formed yet and that selling pressures kick in at the first sign of anxiety," Bill McNamara, technical analyst at Charles Stanley, said.

"The index is really going to have to claw its way back above 5,250 over the next few sessions if any semblance of confidence is to be restored - failure to do so will suggest that the bears are still in control and that a return to 4,790 is still on the cards."

Rumours swirled on Wednesday that French bank Societe Generale could be in trouble over its exposure to Greece and, like the United States, France was about to lose its triple A credit rating.

Both the bank and the ratings agencies vehemently denied the respective rumours.

"Investors are hugely worried about the spread of the debt contagion and the economic status of the U.S. Each sell-off is effectively a cry for help to politicians and central banks to reach a solution to the debt crisis," Jimmy Yates, head of equities at CMC Markets, said.

Goldman Sachs said in a strategy note that the market is not pricing in a recession but valuation alone is rarely enough to turn markets.

"There are signs that the growth data is stabilizing at a low level. This is not to say that the risks have disappeared; we still believe there is a one in three chance of a US recession in the next 6-9 months."

The FTSE 100 is trading on a forward price earnings of around 9.5 times, compared with a 10-year average of 14.1 percent, while offering a dividend yield of 3.7 percent against 2.6 percent on a 10-year government bond, Thomson Reuters Datastream showed.

Banks and insurers, which have potentially have large exposure to the global debt crisis and which were heavily sold off in the previous session, were among the top performers early on.

Cyclical stocks such as miners and integrated oils also bounced but the high price of gold and the strength in the Swiss franc , traditional safe havens, revealed how uncertain investors are about the macroeconomic outlook.

Inmarsat gained 2.8 percent, boosted as Citigroup lifts its rating on the satellite operator to "buy" from "hold" in the wake of recent hefty share price falls.

No major domestic economic data was due for release on Thursday.