MARKET COMMENT: UK Stocks Close Fractionally Higher After Volatile Session

LONDON (Alliance News) - London's major stock indices were little changed Monday, closing slightly higher, after trading in tight ranges throughout the day as investors overturned early losses amid a raft of mixed economic data from around the world.

Meanwhile, trading volumes were higher as traders returned from their Christmas breaks for the start of the first full trading week of 2014.

UK equities opened lower Monday as Chinese services PMI data added to concerns that the world's second largest economy is slowing. Data released by Markit Economics and HSBC overnight revealed that China's service sector growth slowed in December to the weakest level since August 2011. The headline services business activity index came in at 50.9 in December, down from 52.5 in November.

The latest outcome was largely consistent with the results of a survey released last week that showed sharp slowdown in both China's manufacturing and non-manufacturing sector growth.

Stocks, however, quickly reversed the narrow losses to push higher in the aftermath of some mixed services PMI data from across the eurozone.

As a whole, the eurozone's service sector dropped modestly to 51 in December from 51.2 in November, in line with economists' forecasts. Moreover, when combined with the currency bloc's strong manufacturing performance, the seasonally adjusted composite output index rose to a three month high of 52.1 in December from 51.7 in November.

"The PMI surveys indicate that the eurozone recovery gained further traction at the end of last year," Chris Williamson, Chief Economist at Markit, said.

"However, while the region as a whole looks set for a strengthening recovery in 2014, growth is uneven, with France in particular having possibly slid back into recession late last year."

Despite this, the French service sector contracted less than estimated in December, final data from Markit Economics showed. The Services Activity Index fell to 47.8 in December, a 6-month low, from 48.0 in November, but ahead of the 47.4 reading expected by economists.

Among the other member states, Spain was the biggest mover over the month with its PMI output index surging to a near six-and-a-half year record. The Spanish services PMI came in at 54.2 in December, coming in well above the 51.5 expected. In Germany, although the service sector continued to expand in December, the number fell to 53.5 from 55.7 in November, missing expectations of a more modest decline to 54.0.

In the UK, service sector activity slowed unexpectedly in December as new order growth eased. The headline business activity index fell to a six-month low of 58.8 in December from 60 in November. Nonetheless, the latest reading remained comfortably above the boom-or-bust threshold of 50, indicating robust expansion of the sector.

After dipping into the red just before the London stock market close, the FTSE 100 closed fractionally higher at 6,730.73, the FTSE 250 closed up 0.2% at 16,049.3, and the AIM All-Share closed up 0.3% at 868.14.

Also on Monday, UK Chancellor of the Exchequer George Osborne pledged to continue with the government's austerity drive as he warned that more spending cuts would be needed after the next election to bring down the deficit. Osborne reiterated the government's plan to cut spending by GBP17 billion this year and GBP20 billion in 2015, but warned that over GBP25 billion of further cuts would be required over the following two years after the next election due in 2015.

The chancellor set out five key targets for the year ahead: to continue reducing the country's deficit, cutting taxes for those in work, creating more jobs by backing business, capping immigration and welfare and improving the country's schools and the skills of its workforce.

In the US, activity in the service sector unexpectedly grew at a slower rate in the month of December, according to a report released by the Institute for Supply Management on Monday. The ISM said its non-manufacturing index edged down to 53.0 in December from 53.9 in November, missing economists expectations of a rise to 54.6.

Meanwhile, the US Commerce Department revealed that new orders for US manufactured goods rose in line with expectations in the month of November. The report said factory orders increased by 1.8% in November following a revised 0.5% decrease in October.

At the individual UK stock level, the non-life insurance FTSE 350 sector index, closing up 1.5%, was the biggest rising sector, pushed higher by RSA Insurance Group. Blue-chip RSA closed up 6.2% after The Sunday Telegraph reported that the independent investigation into the background to the GBP200 million capital shortfall at RSA?s Irish operations is expected to conclude that it was an isolated incident with no further write-downs needed.

Moreover, in the run-up to the report, which is set to be published on Thursday, UBS has added RSA to its Most Preferred list, increasing its price target to 113.00 pence from 100.00p. While there are significant uncertainties surrounding the review, UBS believes that the balance of risk is to the upside. Alongside this, UBS is confident that franchise damaging disposals, a partial initial public offering, or a full rights issue will not be required.

With some important trade updates due later this week, UK retailers Marks & Spencer, closing down 0.8%, and Sainsbury, closing down 1.2%, were amongst the biggest fallers in the FTSE 100.

FTSE 250-listed Centamin, closing up 2.9%, was amongst the index's biggest risers. The company said that it had beaten its full-year production guidance after producing more gold than expected in the fourth quarter thanks to high productivity at its Sukari process plant. The result brings the company's full-year production to 356,943 ounces of gold, a 36% increase on 2012 and above the company's guidance of 320,000 ounces.

In the data calendar Tuesday, German retail sales data are released at 0700 GMT, ahead of French consumer confidence information at 0745 GMT. German unemployment figures are scheduled to be released at 0855 GMT. Consumer price and producer price numbers for the eurozone are expected at 1000 GMT.

In the US, the world' largest economy releases its trade balance for November at 1330 GMT.

In the corporate calendar, blue-chip easyJet releases its traffic statistics for December, while FTSE 250-listed Dunelm Group, amongst others, provides a trading statement.

By James Kemp; jameskemp@alliancenews.com; @jamespkemp

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