FTSE closes with gains of 0 6 after choppy trading day

A successful Spanish bond auction and positive US economic data helped to encourage higher risk appetite but continued investor nerves over the debt crisis and potential credit rating agency actions kept trading choppy, with the FTSE 100 retracing from gains of 1% in afternoon trade.

Despite the gains, volumes were uninspiring today and this makes today’s gains somewhat susceptible to reversals, particularly if we continue to see negative euro headlines emerge. However, the FTSE 100 has recovered somewhat from support levels, which is positive in the short term, but it is important that the UK Index remains above the 5330-5300 levels in the near term.

The FTSE rallied 0.6% on the day, matching similar gains in French stocks and closely behind the DAX, which outperformed broader Europe by rallying 1%.

A Spanish bond auction this morning, which showed strong demand and average yields fall from previous similar auctions, helped to encourage investors to bargain hunt some of yesterday’s badly beaten stocks. The bond auction is being seen in a positive light considering it comes at a time when sovereign bond yields have raced aggressively higher, including that of Italian 10yr bond yields which have retraced back above the 7% level, although afternoon trade saw Italian yields dip briefly back below the 7% level.

Economic data out of the US in afternoon trade also raised a bit of ‘muted’ market optimism. Weekly jobless claims fell unexpectedly from an upwardly revised figure of 385,000 to 366,000. New York State Fed Manufacturing also rose much higher than expected, hitting 9.53 from a previous figure of 0.61 and the Philadelphia Fed Business Index also beat market expectations, rising to 10.3, more than double the rise originally expected.

However, putting a dampener on the US data was a sharper drop in US Industrial Production than expected, with production falling unexpectedly -0.2% last month for the first time in seven months. It was the Industrial Production figure that helped to force stocks back from their daily highs in afternoon trade.

In terms of sectors, all three heavyweight FTSE 350 stock sectors; banks, miners and oil stocks, gained broadly 0.5% on the day. Insurers were however key gainers, led chiefly by shares of Old Mutual after the firm agreed to sell its Nordic business for $3.2bn, inspiring shareholders that it will help to boost their returns.