MARKET COMMENT: UK Shares Close Higher, TSB Surges On Takeover Talks

LONDON (Alliance News) - The FTSE 100 and FTSE 250 closed higher for a second consecutive day Thursday, continuing to claw back some of the sharp losses of the previous three days, with the focus on another day of heavy individual stock news and movements in the US dollar.

The FTSE 100 closed up 0.6% at 6,761.07, its second successive day of gains following Tuesday's 2.5% fall. The FTSE 250 ended up 0.7% at 17,061.13, and the AIM All-Share index closed up 0.7% at 716.21.

London equities got an initial boost as the recent rise in the US dollar paused, allowing under-pressure mining stocks to rise for a time. The FTSE 100 was up by over 1.0% at one stage. However, the stock index rally petered late in the afternoon as the dollar started strengthening once more, putting commodity prices under renewed pressure.

When the London equity markets closed, Brent oil was down at USD57.19 a barrel, compared with an intraday high of USD58.78 a barrel, and the gold price was down at USD1,150.13 an ounce, compared with its intraday high of USD1,166.65 an ounce. The FTSE 350 mining sector index again ended lower.

European stocks, which have been rallying strongly ever since the European Central Bank announced its quantitative easing programme last autumn, fell slightly Thursday, with the CAC 40 in Paris closing down 0.2% and the DAX 30 down 0.1%.

However, at the close of European stock indices, US indices were trading strongly higher. The DJIA was up 1.1%, the S&P 500 was up 0.9% and the Nasdaq Composite was up 0.6%.

In London, FTSE 250-listed TSB Banking Group closed up 23% after it received a preliminary GBP1.70 billion takeover offer from Banco de Sabadell, Spain's fourth-largest bank by market capitalisation, a deal that would give Lloyds Banking Group a quick exit route from the remaining TSB holding that it is required to sell.

Lloyds Banking said it would be "minded to accept" the 340 pence per share offer for TSB, the FTSE 250 bank it floated on the London Stock Exchange last year, if a deal can be finalised.

TSB said its board has also indicated to Sabadell that it would be willing to recommend an offer at the proposed price, subject to the pair reaching agreements on other terms and conditions of the offer, on which the board has now entered talks with Sabadell.

TSB shares closed at 326.10p. Lloyds closed up 2.1%, while Banco de Sabadell's shares dropped 6.5% in Madrid.

SOCO International closed as the heaviest faller in the mid-cap index, losing a third of its value. The oil and gas company reported a huge fall in profit in 2014, after its revenue fell due to lower oil prices and lower production and it took significant impairments, causing the company to slash its dividend nearly in half. It also warned that production will fall again in 2015, and it is expecting oil prices to be below the price it achieved in 2014, suggesting the company will have a difficult year ahead of it.

Serco Group was the second biggest faller in the FTSE 250, closing down 11%. The outsourcing company reported a massive pretax loss for 2014, as it booked huge provisions on onerous contracts, reported is first fall in revenue as a listed company, and confirmed it had scrapped its final dividend payout, while also saying it will launch a GBP555 million rights issue at more than a 50% discount.

Home Retail Group also fell 11%. The company said it expects its benchmark pretax profit in the recently-ended financial year to be at the top end of current market expectations, after sales in the last eight weeks of the year fell but it said it had made progress on gross margin and costs. However, it also warned that like-for-like sales at Argos are set to be pressured by lower demand for TVs, video game consoles and tablets in the short-term.

Cineworld Group, up 4.4%, was also amongst the best performing stocks in the FTSE 250. The cinema chain hiked its dividend by more than 30% and said its pretax profit in 2014 more than doubled on the back of higher revenue driven by the merger with Cinema City Holding BV and its prospects for 2015 look good on the back of a strong slate of upcoming film releases.

SABMiller was one of the best FTSE 100 performers, ending up 1.7%, after it was initiated with a Buy rating by Exane BNP Paribas. The broker said the brewer is the key merger and acquisition play in the sector, whether as target or a buyer.

Many of the heaviest fallers in the blue-chip index were driven by stocks going ex-dividend. Standard Chartered was the biggest decliner, down 4.4%, while Direct Line Insurance Group fell 2.8%, and BHP Billiton fell 1.3%.

ASOS closed as one of the biggest gainers in the AIM All-Share index, up 17%. The online fashion retailer reported accelerating sales growth during the second quarter of its financial year, driven by strong growth in the UK. Chief Executive Nick Robertson also said its new pricing strategy in international markets is also showing signs of paying off.

The fast-growing retailer said revenue was up 20% at GBP298.3 million in the three months to February 28, from GBP249.0 million a year earlier, an acceleration from the first quarter that meant revenue for the first half was up 14% at GBP550.5 million.

US retail sales fell unexpectedly in February according to a report by the Commerce Department. It said retail sales slid by 0.6% following a 0.8% decrease in January. The drop surprised economists, who had expected sales to rise by 0.3%. Retail sales have now fallen in the US for the last three consecutive months. The figure saw the dollar drop against other major currencies for a time before renewing its rise.

In the economic calendar Friday, Japanese industrial production is at 0430 GMT, German wholesale price is at 0700 GMT, US producer price index is at 1230 GMT, and the Reuters/Michigan Consumer Sentiment Index is at 1355 GMT.

In the corporate calendar, JD Wetherspoon is reporting half-year results, and recruitment company Sthree will issue a first quarter interim management statement. Oxford Biomedica and Independent News & Media will be reporting full-year results.

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

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