Bank gives FTSE welcome lift

The Bank of England’s decision to keep interest rates on hold gave the London market a welcome lift today.

Investors reacted positively to the news that rates had been kept at 5.25%, despite widespread predictions that the Bank’s Monetary Policy Committee (MPC) was only holding fire until next month, when it is expected to deliver another quarter point rise.

The FTSE 100 Index had edged up 12.6 points to 6377.3 by mid-session trading after languishing in negative territory ahead of the MPC decision.

Financial services group Old Mutual featured high up on the risers’ board after a broker upgrade from Citigroup, reflecting increased savings and gains in equity markets. Shares were up 3%, or 4.9p, to 171.4p.

Aljit Vohra, a trader at CMC Markets, said: “Old Mutual has been one of the poorer performing stocks in its sector during 2007 due partly to the weak rand and also due to lack of merger and acquisition activity which has seen some of its competitors prosper.”

Oil majors also led the way, with BP ahead 1%, or 4.5p at 552.5p and Royal Dutch Shell 11p stronger at 1686p. Traders said the improvement reflected the easing of diplomatic tensions in the Middle East.

Meanwhile, speculation over an imminent approach for Sainsbury’s failed to add any further weight to the supermarket’s share price, which eased 1.5p to 559.5p.

Reports also suggested that the private equity consortium bidding for the group could be trimmed in size as Kohlberg Kravis Roberts, which is also in talks to buy pharmacy chain owner Alliance Boots for around £10 billion, was rumoured to have pulled out over concerns its involvement in both deals would cause competition problems.

UK brewing giant Scottish & Newcastle saw its shares drop 9p to 597p after broker downgrades from ING and Dresdner Kleinwort, with both suggesting current bid speculation was “overplayed”.

Dresdner Kleinwort said neither rival Diageo nor SABMiller had any desire to increase their exposure in western Europe, while Heineken would face too many regulatory hurdles and Carlsberg’s management “still had too much to prove” to be a realistic bidder.

Outside the top flight, care home operator Southern Cross Healthcare rose 3% after Morgan Stanley said acquisition growth opportunities made the stock more attractive. Shares lifted 15.25p to 495.25p.

Restaurant group La Tasca eased 2.5p to 200.5p, as investors digested the fact that the bidding war for the group had come to an end after entrepreneur Robert Tchenguiz posted a winning offer of 200p a share.

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