MARKET COMMENT: Stocks Buoyed By Greek Hopes, Oil Price Rise

LONDON (Alliance News) - London's main stock indices rose strongly Tuesday, supported by a further rise in oil prices and hopes that a debt proposal put forward by Greece's new finance minister would mark progress in resolving the country's dispute with its creditors.

The FTSE 100 closed up 1.3% at 6,871.80, having touched its highest point since September 4 during the trading day at 6,886.31. The FTSE 250 closed up 1.3% at 16,570.30, and the AIM All-Share closed up 0.3% at 693.27.

In Europe, the CAC 40 in Paris rose 1.1% to 4,677.90, touching its highest closing level since June 2008. The DAX 30 in Frankfurt closed up 0.6% at 10,890.95, another record closing high for the index.

At the European equity market close, stock indices on Wall Street were also pushing higher, with the DJIA up 1.0%, the S&P 500 up 0.7%, and the Nasdaq Composite trading up 0.2%.

The newly-elected Greek government outlined proposals on Monday for ending the confrontation with its creditors by swapping outstanding debt for new growth-linked bonds, running a permanent budget surplus, and targeting wealthy tax-evaders, the Financial Times reported.

The country's new finance minister, Yanis Varoufakis, told the FT the government will no longer call for a headline write-off of Greece's EUR315 billion foreign debt and would instead request a "menu of debt swaps" in order to ease the burden on its finances.

Varoufakis called it "smart debt engineering," and insisted that Greece's current bailout deals were "unenforceable" and needed "to be rethought from scratch."

But Greek government spokesman Gabriel Sakellaridis also said the government has not changed its stance on the country's debt, insisting a debt write-down is necessary to make it more sustainable.

"For the first time it looks as if the new Greek government is reacting, rather than driving events. A switch to a more conciliatory tone on the part of the finance minister and the prime minister has raised hopes that a deal may be possible," said IG market analyst Chris Beauchamp.

"Added to that is the fact that the Germans have yet to completely dismiss the debt-swap idea, when normally a rejection would be swift and curt. Perhaps we will avoid another Greek crisis after all," the analyst added.

The London equities markets were also buoyed by a further rise in oil prices, with Brent reaching a high of USD57.16 a barrel, its highest level since January 2. At the London stock market close Brent was trading at USD56.33 a barrel.

Weir Group, up 5.5%, Royal Dutch Shell 'A', up 4.5% and Tullow Oil, up 3.9% were all amongst the best-performing FTSE 100 stocks. In the FTSE 250, Hunting closed up 15%, Premier Oil up 9.0%, SOCO International up 7.0%, and Ophir Energy up 6.2%.

The main corporate news of the day came from the sector, as BP and BG Group joined Royal Dutch Shell in slashing their capital expenditure budgets for 2015 and booking impairments and writedowns on assets in 2014, in response to the big slide in oil prices in recent months. Despite the rally of the past few days, the Brent oil price is still down from over USD115 a barrel last June.

BP said it has cut its 2015 capital expenditure plan by up to USD6 billion, while BG Group said 2015 spending would be USD6 billion to USD7 billion down on 2014. Last week, Shell reduced its capital investment for 2015, saying it would curtail USD15 billion of potential spending over the next three years, and could cut further if oil prices stay low.

BP reported that its underlying cost replacement profit for the fourth quarter ended December 31 was USD2.2 billion, significantly lower than the USD2.8 billion reported a year earlier, but higher than analysts' expectations of around USD1.57 billion.

BG Group beat analyst forecasts reporting profit excluding impairment charges of USD915 million in the fourth quarter ended December 31, down 19% from the USD1.13 billion reported a year earlier. Revenue fell to USD4.40 billion, from USD5.42 billion, as upstream revenue almost halved and liquefied natural gas shipping and marketing revenue fell sharply. This was partially offset by hedging gains, which totalled USD229 million.

BP closed the day up 2.8%, while BG Group closed up 1.2%.

Intertek Group closed was the best performing blue-chip stock, up 6.5%. The inspection and testing services company said it has acquired Adelaide Inspection Services Pty for AUD12 million in cash. AIS provides non-destructive testing services primarily to the power generation sector, along with support services to construction, oil, gas and mining industries.

Aberdeen Asset Management, down 3.8%, was the biggest faller in the FTSE 100. The asset manager said assets under management dropped slightly in the first quarter of its financial year as weak investor sentiment hit inflows in December, although it said flows returned to more normal levels in January. However, it's also expecting demand for investment products to remain volatile due to continued volatility in global markets.

The price of gold continued its recent downward trend, falling to a low of USD1,254.90 an ounce. Gold miners Randgold Resources, down 1.1%, and Fresnillo, down 0.7% were amongst the worst-performing FTSE 100 stocks, while Centamin, down 2.7%, was the second-biggest faller in the FTSE 250, after Euromoney Institutional Investor, down 3.4%.

The FTSE 100 also rose in response to the latest set of weak US manufacturing data, suggesting investors believe that the Federal Reserve's first interest rate hike could be further pushed back.

The Commerce Department released a report showing a sharp drop in new orders for manufactured goods in December. The report said factory orders tumbled by 3.4%, exceeding the 2.2% drop forecast by economists.

The pound was given a boost after the UK construction sector improved in January. The Markit construction Purchasing Managers' Index came in above economists' expectations, rising to 59.1 in January from a revised score of 57.6 in December. The score was higher than the expected level of 57.0.

"UK construction companies have found their feet again after a protracted slowdown in output growth at the end of 2014. Stronger trends were recorded across housing, commercial and civil engineering, although each category of activity still experienced much slower growth than the high-water marks achieved last year," said Tim Moore, a senior economist at Markit.

In the economic calendar Wednesday, there will be Markit services PMI readings from Japan at 0135 GMT, France at 0850 GMT, Germany at 0855 GMT, the eurozone at 0900 GMT, the UK at 0930 GMT and the US at 1445 GMT, while HSBC services PMI for China will be at 0145 GMT. There will also be retail sales from the eurozone at 1000 GMT, while in the afternoon the focus will be on US ISM non-manufacturing PMI at 1500 GMT and US EIA crude oil stocks at 1530 GMT.

In the corporate calendar Wednesday, full year results are expected from pharmaceutical giant GlaxoSmithKline, and half-year results from investment management company Hargreaves Lansdown and broadcaster Sky. High performance polymer maker Victrex will issue an interim management statement and International Consolidated Airlines Group will release January traffic statistics.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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