Merlin Entertainments Share News (MERL)

LONDON (Alliance News) - Share prices in London ended higher Tuesday, with banks leading gainers in the FTSE 100 after the Bank of England's stress test concluded that the UK banking system is strong enough to continue lending even in a severe global downturn.

The FTSE 100 index closed up 0.6% at 6,395.65 points, the FTSE 250 also up 0.6% at 17,516.76 and the AIM All-Share up 0.1% at 738.30.

US stocks were trading higher at the end of trading in London, with the Dow Jones Industrial Average and the S&P 500 both up 0.5% and the Nasdaq Composite index up 0.4%.

Shares in New York were shrugging off data from the Institute for Supply Management showing that the US manufacturing sector unexpectedly contracted for the first time in three years in November.

The ISM said its Purchasing Manager's Index dropped to 48.6 points in November from 50.1 in October, with a reading below 50 indicating a contraction in manufacturing activity. The drop into contraction came as a surprise to economists, who had expected the index to climb to a reading of 50.3.

However, Markit's US manufacturing PMI came in better than expected at 52.8 in November, with economists having expected it to remain unchanged from the 52.6 reading in October.

Sterling lost some ground against the dollar after survey data from Markit showed Tuesday that the UK manufacturing sector growth eased in November from the recent peak achieved in the prior month.

The Markit/Chartered Institute of Procurement & Supply Purchasing Managers' Index for manufacturing fell by more than expected to 52.7 in November from October's 16-month high of 55.2. The score was expected to decline to 53.5. Nonetheless, a reading above 50 still indicates expansion in the sector.

The pound was quoted at USD1.5064 at the London close, having stood at USD1.5122 just before the PMI reading.

Eurozone's final manufacturing Purchasing Managers' Index rose to a 19-month high in November of 52.8 from 52.3 in October. The final PMI of 52.8 was in line with an earlier flash reading. Meanwhile, eurozone's unemployment rate declined to its lowest level since early 2012, data from Eurostat showed, dropping marginally to 10.7% in October from 10.8% in September.

The two sets of data pushed the euro higher, with the single currency being quoted at USD1.0619 at the London close.

France's manufacturing PMI missed economists expectations, coming in at 50.6 in November, after being forecast to remain flat from a previous reading of 50.8. The same from Germany came in slightly better than expected at 52.9 in November after October's 52.6, with economist having expected a reading of 52.6.

Meanwhile, the Federal Labor Agency said Germany's unemployment rate decreased to a record low in November. The jobless rate dipped to 6.3% in November from 6.4% in October. It was forecast to remain unchanged at 6.4%.

The French CAC 40 index and the German DAX 30 ended down 0.9% and 1.1%, respectively, both having closed higher in the last four trading sessions. Investor confidence has been boosted of late by expectations of more stimulus from the European Central Bank to be announced after its meeting on Thursday.

Annual stress tests showed that Royal Bank of Scotland Group and Standard Chartered had capital inadequacies at the end of 2014, but both lenders have done enough since that stage to earn a reprieve from the Bank of England, which said the overall results showed the UK banking system would be able to continue lending in the event of a severe global downturn.

None of the seven banks subjected to the stress test was required to submit revised capital plans, and the central bank's Financial Policy Committee said that a continued improvement in capital levels across the system during 2015 suggested that UK banks would be more resilient to macroeconomic stress in the future.

The stress tests showed no capital inadequacies for Barclays, HSBC Holdings, Lloyds Banking Group, Nationwide Building Society, or Santander UK, based on their 2014-end balance sheets.

The stress tests, which assessed banks' capital strength at the end of 2014, considered the effect of a big slowdown in growth in China and across the globe, as well as plunging commodity prices, deflation in the eurozone and heightened volatility in financial markets.

Barclays finished as the best blue-chip performer, up 4.6%, while RBS ended up 3.2%. Lloyds and HSBC rose 2.8% and 1.8%, respectively. Meanwhile, Standard Chartered declined 0.1%.

Property developer Hammerson closed up 2.8% after being upgraded to Buy from Neutral by Goldman Sachs, while Liberum initiated the company with a Buy stance.

Merlin Entertainments finished up 1.4%. The theme park and attractions operator said trading has remained in line with its expectations and it is on track for the year to December 27, despite continued tough trading in its Resort Theme Parks operating division.

The group, which runs attractions and parks ranging from Legoland to Madame Tussauds and the London Eye, said like-for-like revenue growth for its Legoland Parks division has remained robust in the 47 weeks to November 21, while its Midway Attractions business has seen growth, albeit at lower levels due to challenging markets in London and Hong Kong, which has been offset by strength elsewhere in Asia.

For the Resort Theme Parks operating arm, however, trading at Alton Towers has remained significantly weaker year-on-year, though the year-on-year declines have eased in recent weeks. This comes after the Smiler ride at the park crashed in June, injuring 16 people in total and four seriously.

At the other end of the index, Babcock International Group ended down 1.6% after Citigroup downgraded the engineering support services company to Sell from Neutral.

In the FTSE 250, Petra Diamonds ended up 13%, the best mid-cap performer, after it said it has bought an interest in the Kimberley Mines in South Africa from De Beers Consolidated Mines, in consortium with Ekapa Mining, for around USD7.2 million. Ekapa Mining will have a 50.1% stake in Kimberley Mines, whilst Petra will have a 49.9% stake. Petra will pay around USD3.6 million for its portion of the venture.

Petra Diamonds is likely to be demoted from the FTSE 250 on Wednesday, following the quarterly FTSE index review.

Home Retail Group added 3.4% after the Financial Times reported that the retail executive responsible for turning around the Garden Centre Group is understood to be preparing a bid to buy the Homebase DIY and garden centre business from Home Retail, the Financial Times reported.

Nicholas Marshall told the FT he has been looking at Homebase for the past couple of years and was holding talks with private equity companies, though no approach has yet been made to Home Retail, which also owns the Argos retail chain.

Investec analyst Alistair Davies said splitting up Home Retail is feasible, despite the group using its scale to commonly source product and dual-stocking of lines in Argos and Homebase. On a sum of the parts basis, Davies said Investec conservatively values Homebase at GBP230.0 million, with the balance sheet supporting a total Home Retail group value of GBP1.45 billion. Home Retail currently has a market capitalisation of GBP872.8 million.

Sophos Group ended at the bottom of the mid-cap index, down 8.2% at 260.42 pence, after Pentagon Lock said it sold 60 million shares in Sophos, or around a 13.3% stake, at a price of 265 pence each Tuesday, or a total of GBP159.0 million.

This was a discount to the IT security and software company closing price on Monday of 283.60 pence. Following the sale the sellers, Pentagon Lock Sarl, Pentagon Lock 7-A Sarl, Pentagon Lock US Sarl, and Pentagon Lock 6-A Sarl, hold an around 21.8% stake in Sophos.

In the corporate calendar Wednesday, Sage Group, Brewin Dolphin Holdings and Zoopla Property Group release full-year results. Greene King publishes half-year results, while recent listing Softcat issues a trading statement. Telford Homes, Iomart Group and Numis Corp release half-year results.

In the economic calendar, UK Construction PMI is expected at 0930 GMT, while eurozone's consumer price index is due at 1000 GMT. In the US, ADP employment change data are due at 1315 GMT, while Energy Information Administration crude oil stocks are due at 1530 GMT. At 1700 GMT, Federal Reserve Chair Janet Yellen speaks before the Economic Club of Washington, while at 1900 GMT, the Fed releases its Beige Book.

By Daniel Ruiz; danielruiz@alliancenews.com

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