UK stocks : Momentum begins to slow with FTSE 100 at 4-1/2 yr highs

Jan 12 2013, 03:57 IST
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SummaryLondon's blue chip index closed marginally higher on Friday.

UK stock closing: London's blue chip index closed marginally higher on Friday as demand for oil and financial stocks kept it at multi-year highs, but an overshoot in China inflation data weakened mining stocks.

Britain's top share index closed up 20.07 points, or 0.3 percent at 6,121.56, the highest since mid-2006, consolidating Thursday's close above 6,100, but momentum appears to be slowing with the index trading in a tight 60-point range over the last week.

"The market has been trending up for some time. Some of the smarter trend followers may be thinking of taking money off the table because there are risks of reversals and macro concerns," Edward Pope Croft, CEO of Stockopedia, said.

Volatility - a crude gauge of investor fear - recently climbed off five-year lows leaving strategists questioning whether the market has become complacent, drawing comparisons with February 2011 right before the market started a multi-month correction.

"I would still buy (cheap) volatility (to protect against a market correction). The fuse has been lit, the question is can the hero get there in time?" Nick Xanders of European equity strategy at brokerage BTIG said.

From a technical point of view the FTSE100 index is testing resistance at the 2011 peaks with support from the uptrend line at 5,750.

Recent gains have been driven by cyclicals and financials as the threats to the global economy - the euro zone debt crisis and the U.S. fiscal issues - appear to have subsided.

"In the first quarter we still think cyclical and financials will do better than defensives, it may reverse after that but for the first few months we would expect last year's trend to continue," Adrian van Tiggelen, senior strategist at ING Investment Management, said.

Banks kept pushing higher with the sector a favourite among investors gaining 45 percent since central banks stepped in to backstop the financial system and more recently the relaxation in liquidity rules from Basel.

Insurers, which remain cheap on valuation grounds, trading on just 8.8 times 12-month forward price-to-earnings compared with the FTSE 100 on 11.2 times, rose too.

Aviva led the sector higher, up 3.3 percent after Citigroup to "buy" from "neutral" on valuation grounds.

A boost from a broker also sent British Airways owner International Consolidated Airlines up 5.4 percent, the top individual riser on the FTSE 100.

UBS upgraded the stock to "buy" on increased optimism over the outcome of a restructuring at Iberia and valuation grounds.


A fall in the

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