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FTSE edges up on China intervention

Thursday, September 27 09:27:54

British equities edged up from two-week lows today, bolstered by expectations of market and economy boosting measures from China, but tensions in the euro zone kept risk appetite in check. China's Shanghai Composite surged on speculation that authorities might take steps to prop up the market after the benchmark index dropped to three-and-a-half year troughs below the 2,000 mark this week. Banks also benefited from news that China's central bank injected a net $58 billion into money markets in the largest weekly injection in history. In Britain, that gave investors the excuse to buy back into the market, taking advantage of the recent 3 percent retreat in the FTSE 100 from six-month highs. But ongoing problems in the euro zone, where Spain is due to present tough and unpopular budget measures on Thursday in order to open the door to an international bailout, kept a lid on risk appetite.

"You've got the Chinese news this morning, and that's marvelous and that gives us a reason for a bit of a bounce which could continue into the afternoon. But will the buy side dealers come in and say we believe it? No... It's great, but we want actions not words," said Steve Larkins, head of sales trading at Seymour Pierce. The benchmark UK index was up 17.15 points, or 0.3 percent at 5,785.24 by 0741 GMT, recouping some of the previous session's 91.62 point drop to two-week lows. Britain's heavyweight miners, which rely on the economic health of China as the world's top metals consumer, were the top gainers, with the sector up 1.4 percent. "Seems a long shot, but anything is possible nowadays," strategists at ING said of the Chinese speculation.

Thin volumes underscored a note of caution in the market, with only around 5 percent of the 90-day daily average turned over on the FTSE 100 in the first half an hour of trade. There were also fresh signs of troubles in the euro zone hurting UK corporates, with Compass Group cutting operations in Southern Europe in the face of worsening trading conditions. Shares in the caterer fell 0.8 percent.

Technical charts painted a mixed picture on the FTSE 100. Thursday's rebound came after the benchmark UK index found solid resistance around the 23.6 percent retracement of its early June to mid-September rally, the trendline of that rally and the 50-day moving average. The bounce back from there has brought it into a cluster of technical resistance in the 5,780 to 5,800 range, where the 20- 30- and 40-day moving averages lie. "What we need to see to suggest that the trendline (support) has held is a decent bounce, one of at least 1 percent," said Bill McNamara, technical strategist at Charles Stanley. "If the index ends today with a move of 15-20 points, investors should remain concerned, because a move of that magnitude after a drop of 90 points isn't particularly compelling and suggests that there is still scope for further weakness." ( C) Reuters