MARKET COMMENT: UK Stocks Edge Higher After Cautious Start

LONDON (Alliance News) - UK stocks erased early losses to close higher Monday as investors assumed their positions at the beginning of a busy week of economic data releases and traders reacted positively to a strong double-release from Aberdeen Asset Management.

London's major equity indices opened fractionally lower Monday, before trading in a relatively tight range throughout early trading, ignoring gains made in Asia overnight.

Asian equities were pushed higher after China vowed to deepen reforms to allow its transition towards a consumption-driven economy Friday. Unveiling a raft of reforms, China announced plans to allow more private investment in the state sector, build a more and impartial and sustainable social security system and let Chinese companies and individuals make investments offshore more easily. The Hang Seng closed 2.7% higher, after hitting a nine-month high in early trading.

However, "After an initially slow start European markets finally threw off some of their caution and pushed higher," Michael Hewson, chief market analyst at CMC Markets, said, "helped in no small part by a solid performance from financial stocks, ahead of the release of the latest Fed minutes later in the week."

At the close of the UK equity market, the FTSE 350 general financial index, up 1.7%, was the biggest gaining sector, boosted by blue-chip Aberdeen Asset Management, closing up 12% at 478.053 pence. Aberdeen is set to become the world's largest listed fund manager after it agreed a deal to buy Scottish Widows Investment Partnership Group Ltd. from Lloyds Banking Group for up to GBP660 million.

Aberdeen, which had GBP200.4 billion in assets under management at the end of September, will add a further GBP136 billion by buying the business with annual revenues of about GBP234 million.

"We are confident that this transaction will deliver considerable additional value to our expanded client base and this will therefore benefit our shareholders," Aberdeen Chief Executive Martin Gilbert said in a statement.

Lloyds Banking Group, closing up 0.8% at 75.9953p, was a big FTSE 100 winner as it said it expects to book an after-tax gain of GBP190 million through the deal. Gary Greenwood, an analyst at Shore Capital views this as, "A sensible transaction that further enhances Lloyds' capital base at a time when regulatory capital requirements continue to ?creep? upwards."

Separately, Aberdeen raised its total dividend for its last financial year after reporting higher earnings, assets under management and revenue. The asset manager said revenues rose to GBP1.08 billion in the year to end-September, from GBP869.2 million a year earlier, while pretax profit rose to GBP390.3 million, from GBP269.7 million. It raised its total dividend to 16.0 pence, from 11.5p, as assets under management totalled GBP200.4 billion at the end of the year, up from GBP187.2 billion a year earlier.

Average asking prices of a property in the UK declined in November, in line with the usual pre-Christmas trend, a monthly survey by Rightmove revealed. Prices fell 2.4% on a month-on-month basis, following a 2.8% surge in October. Additionally, household finances in the UK deteriorated at the fastest pace in seven months in November, a survey by Markit Economics showed Monday. The household finance index fell sharply to 38.8 in November from 41 in October. The reading was the lowest since April this year. This, however had little impact, positive or adverse, on the equity indices.

The FTSE 100 finally closed up 0.5% at 6,723.46, the FTSE 250 closed up 0.3% at 15,290.48, and the AIM All-Share index closed up 0.2% at 809.69. In Europe, the French CAC closed 0.7% higher, with the German DAX ending up 0.6%.

At the London close, Wall Street is trading mixed; with the DJIA up 0.3%, the Nasdaq down 0.1%, while the S&P 500 is close to flat.

In the forex market, "The US Dollar continues to edge lower in the days after Federal Reserve Chairwoman nominee Janet Yellen?s Senate testimony on Thursday, as the soon-to-be most powerful woman in the world made clear her intentions to keep monetary policy as loose as possible in the near-term," said Christopher Vecchio at DailyFX.

Investors continue to wait for further clues as to when the Federal Reserve plans to begin tapering its USD85 billion-a-month stimulus programme; the minutes from the FOMC meeting held on October 29 and 30 are set for release Wednesday. The dollar is currently losing ground against the euro, the Swiss franc and the Japanese yen. At the close of the UK equity market, the dollar traded at 100.041 against the yen, 0.9118 against the franc, and 0.7393 against the euro.

The pound is virtually unchanged against the American currency, trading at 1.6110.

Within the FTSE 350 sector indices, the oil equipment, services and distribution index, closing down 5.5%, was the biggest loser, dragged lower by Petrofac. Petrofac, closing down 16% at 1,215.7928p, was the biggest blue-chip faller on the back of a disappointing interim management statement. "Project slippages have reduced 2014 expectations and increased the risk that the 2015 earnings target will be missed," Liberum Capital says.

In the FTSE 250, Aveva Group, closing down 7.8% at 2,365.14p, was the index's biggest faller. The software company said its operating expenses increased 12% to GBP73.0 million from GBP65.0 million and there was slower-than-expected growth in its enterprise solutions division, which will lead to lower-than-expected revenue for that division for the full financial year.

In the data calendar Tuesday, President of the Federal Reserve Bank of Minneapolis, Narayana Kocherlakota, and US Treasury Secretary, Jack Lew, give speeches overnight, while Charles Evans, president of the Federal Bank of Chicago, speaks at 1915 GMT. Chinese foreign direct investment data is released at 0200 GMT, ahead of Japanese leading economic index and coincident index figures at 0500 GMT. German and EU economic sentiment information is scheduled to be released at 1000 GMT.

In a busier day in the corporate calendar, blue-chips ITV, Smiths Group, AMEC, Melrose Industries and Intertek Group are joined by FTSE 250-listed Galliford Try and Keller Group, amongst others, in releasing interim management statements. FTSE 100-listed easyJet and mid-caps Enterprise Inns, Halma and Homeserve, amongst others report interim results.

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

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