Taylor Wimpey Plc (TW/), Britain's biggest homebuilder, led construction and building-materials stocks higher as better-than-expected results from U.S. banks eased investor concerns about funding.
Taylor Wimpey surged 12 percent. European stocks have snapped a six-week rout as Citigroup Inc. reported earnings that beat analysts' estimates and oil retreated. ``Bombed-out'' U.K. homebuilding stocks are rising as investor sentiment improves, Kaupthing Bank Hf analyst Kevin Cammack said today.
The success of British house builder Barratt Developments Plc (BDEV) in gaining new banking terms and debt refinancing has also calmed market worries that some wouldn't survive a housing slump, London-based Cammack said. Wolseley Plc (WOS), the world's biggest distributor of plumbing and heating gear, said yesterday it was not planning a capital raising and will sell property and units to ensure it stays within the terms of its bank loans.
``There has been a demonstration that these businesses can renegotiate their debt covenants without having to be bailed out with massively dilutive equity,'' Cammack said in a telephone interview. ``That, along with a better market mood, has been a real turning point.''
Taylor Wimpey, which has fallen 78 percent this year, advanced 5 pence to close at 45.25 pence. Reading, England-based Wolseley rose 14 percent to 327 pence.
U.K homebuilder stocks have slumped since the start of June on investor concerns that some may be forced to write down land values, carry out rights offerings or swap debt for equity to cope with the most widespread housing downturn in 30 years.
``The market has lost its fear that there was no alternative to either refinancing or going bust,'' Cammack said. ``There is a middle ground and that's what has encouraged the market to rally a lot of these stocks.''
Homebuilding stocks are ``reverting to levels which to some extent begin to reflect the underlying value of the assets and the land they hold,'' the analyst said.
Barratt gained 20 percent and rival Redrow Plc (RDW) advanced 16 percent. Persimmon Plc (PSN), Britain's biggest homebuilder by market value, advanced 15 percent. Building products suppliers such as Travis Perkins Plc (TPK), SIG Plc (SHI) and Galiform Plc and Lavendon Group Plc (LVD), which provides truck-mounted lifts to builders, also rose. The FTSE All-Share Construction & Materials Index increased for a second day after gaining 7.3 percent yesterday, its biggest daily advance since May 3, 2007.
Some stocks, particularly Taylor Wimpey, Barratt and Redrow, are also being boosted as investors who had shorted the U.K. homebuilders' shares closed their positions, Cammack said. In a short sale, a trader borrows and sells shares in anticipation of a price drop, aiming to profit by repurchasing them later at a lower cost.
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