London edges higher as banks rebound
FTSE 100 up 0.3%; Barclays, Royal Bank of Scotland advance
LONDON (MarketWatch) -- Shares edged higher Friday, scoring mild gains amid banks moving higher ahead of a vote on a U.S. plan to shore up the financial sector, though London's advance was partly offset by weakness in oil companies.
Overall, the FTSE 100 index rose 0.3%, adding 14.63 points to stand at 4,884.97. Other European shares also traded higher, shrugging off a sharp fall in U.S. employment. See Europe Markets.
Government data showed U.S. nonfarm payrolls fell by 159,000 in September, the worst for job losses since March 2003 and wider than the 110,000 expected by economists polled by MarketWatch.
Banks advanced in London as investors continued to hope that a $700 billion plan to bail out the financial sector will pass in Congress on Friday.
Shares of Barclays advanced 6.5%, while Royal Bank of Scotland Group ) rose 3.5%.
Investors were also eyeing news that the U.K. Government will guarantee 50,000 pounds for savers, up from a previous deposit level of 35,000 pounds, and that it has eased collateral rules for three-month loans.
Still, losses in the oil sector capped London's gains.
Crude-oil futures fell nearly 5% Thursday to close at their lowest level in more than two weeks, weighed down by gains in the U.S. dollar and ongoing concerns about a slowdown in global oil demand. See full story.
The November-dated light crude contract was up 22 cents at $94.19 a barrel Friday.
Shares of Cairn Energy shares fell 4.1% and oil-services firm Petrofac skidded 5%.
Royal Dutch Shell saw its shares ease 0.9% after a report that it has offered about 600 million pounds, or 300 pence a share, to buy Regal Petroleum .
Regal Petroleum shares shot up 42% to 118 pence outside London's top index.
Preferred vehicle in commodities
European equity strategists at Credit Suisse said that they are more positive on oil companies than mining firms as they believe oil prices will hit trough at around $85 a barrel while stocks are pricing in $80 crude.
"Unless oil demand in the U.S. and Europe falls more than 7% year on year, OPEC's spare capacity remains under 5% for the next five years. Hence the oil price has to be above a level that renders oil sands economic, otherwise spare capacity becomes even more acute," they said.
The strategists also noted that oil is historically a defensive sector for investors. "We favor the safety of big-cap oil with high dividend yield," they said, highlighting BP . BP's shares added 0.8%.
The strategists also said that they would sell into any strength in the mining sector in order to reduce the sector to benchmark. They believe industrial production is set to decelerate, that valuations are about neutral and that earnings estimates will fall by between 25% and 30%.
Among mining shares, Kazakhmys , traded down 3.8% and Lonmin lost down 2.2%. Lonmin was downgraded to underperform from neutral at Exane BNP Paribas.
Meanwhile, British Airways dropped nearly 8%, retreating after the carrier reported September traffic dropped 4.8% and said trading conditions remain difficult.
Also on the move, shares of London Stock Exchange fell 2.2% after Credit Suisse cut its rating to underperform from neutral, citing slowing volumes and the emergence of new competitors such as Chi-X.
Stocks that are sensitive to trends in consumer spending also came under pressure, with retailer Next declining 2.6%.
Noting that sales at privately owned department store bellwether John Lewis fell 8.6% on a year-on-year basis in the week ended Sept. 27, Howard Archer at Global Insight said: "The marked deterioration in sales over the past two weeks suggests that the heightened turmoil in the financial sector and markets is significantly hitting consumer confidence and spending."
Shares of homebuilder Taylor Wimpey fell 5.1%, also outside the top index.
The company said that it will extend current discussions on financing to include applicable eurobond holders, a stop effectively prolonging the negotiation process.