LONDON MARKETS: U.K. Stocks Gain Ground As Banks Rise After Upgrade

U.K. industrial, manufacturing production rise year-over-year

U.K. stocks rose Tuesday, with banks among biggest gainers after a broker upgrade, outperforming the wider European market that was weighed by tensions between Catalonia and Madrid.

The FTSE 100 index picked up 0.4% to end at 7,538.27, marking its highest close in two months.

Shares of Royal Bank of Scotland Group PLC (RBS.LN) (RBS.LN) rose 2% and Lloyds Banking Group PLC (LLOY.LN) (LLOY.LN) added 0.8% after both were upgraded by Credit Suisse, according to Dow Jones Newswires.

Beacon of calm: More broadly, U.K. stocks "found itself an unlikely beacon of calm" in Tuesday's trade ahead of a speech by Catalan President Carles Puigdemont in the region's parliament, said Chris Beauchamp, chief market analyst at IG, in a note. Traders were watching to see if the separatist leader will declare independence for Catalonia after more than 90% of voters supported a split from Spain in the referendum on Oct. 1. The central government in Madrid has declared the vote illegal and unconstitutional.

Maurice Obstfeld, the chief economist at the International Monetary Fund, on Wednesday singled out the Catalan drama and uncertainty from Brexit as major risks to the outlook for the European economy (http://www.marketwatch.com/story/imf-sees-risks-to-economic-outlook-from-brexit-and-catalonia-tension-2017-10-10).

"Even the IMF's warning about weaker U.K. growth thanks to Brexit failed to dent the enthusiasm for U.K. equities, given that there is probably no one left in global markets who doesn't think Brexit will prove to be a problem. 'Tell me something we don't know', seemed to be the message investors were sending the IMF," Beauchamp said.

Downgrade to growth: The IMF on Tuesday cut its 2017 U.K. growth forecast to 1.7% from 2%. The U.K. was a "notable exception" among other advanced economies that saw a pickup in activity in the first half of the year from the second half of 2016.

"The medium-term growth outlook is highly uncertain and will depend in part on the new economic relationship with the EU and the extent of the increase in barriers to trade, migration, and cross-border financial activity," he IMF said in its World Economic Outlook report.

The IMF downgrade comes after the OECD on Monday also said the U.K. economy is continuing to show signs of easing growth at a time when other economies, including the eurozone, the U.S. and Japan, are showing stable growth momentum.

Data: Sterling rose to $1.3213 on Tuesday after the Office for National Statistics released August figures on industrial and manufacturing production. But the move higher for the pound didn't drag down the FTSE 100, which can come under pressure when the pound's value strengthens.

Manufacturing production, a key component of industrial output, surged 2.8% on a year-over-year basis, outstripping expectations of a 1.9% increase in a FactSet survey of economists. Industrial production rose 1.6% year-over-year, above a forecast of 0.9%.

Separately, the ONS said the U.K. trade deficit in goods widened in August (http://www.marketwatch.com/story/uk-trade-deficit-in-goods-hits-record-high-2017-10-10), largely on an increase in imports of mechanical machinery and a drop in fuel exports.

Read:Boris Johnson in the crosshairs, as U.K. leader Theresa May gears up for key Brexit talks (http://www.marketwatch.com/story/boris-johnson-in-the-crosshairs-as-uk-leader-theresa-may-gears-up-for-key-brexit-talks-2017-10-09)

Stocks in focus: Capita PLC (CPI.LN) rose 1.3% after the outsourcing and professional services company named Jonathan Lewis as its new chief executive officer, effective Dec. 1 (http://www.marketwatch.com/story/capita-appoints-jonathan-lewis-as-new-ceo-2017-10-10-2485286).

BAE Systems PLC (BA.LN) fell 0.3% as the defense contractor said it plans to cut roughly 2,000 jobs (http://www.marketwatch.com/story/bae-systems-to-cut-almost-2000-jobs-2017-10-10) in a bid to lower costs. About 1,400 losses would come from the military aircraft division that makes Typhoon combat jets and Hawk training planes.

Sky PLC shares (SKY.LN) lost 0.2%. The U.K. Competition Authority said it plans to examine how the proposed takeover of Sky by 21st Century Fox Inc (http://www.marketwatch.com/story/competition-watchdog-lays-out-fox-sky-probe-2017-10-10). (FOX) would affect media plurality and broadcasting standards in the U.K.

(END) Dow Jones Newswires

October 10, 2017 12:33 ET (16:33 GMT)