U.K. Stocks Advance After Cameron Forms Government; ITV, Old Mutual Climb

U.K. stocks rose after Bank of England Governor Mervyn King welcomed Prime Minister David Cameron’s plans to cut the nation’s budget deficit as Europe’s fiscal crisis threatens the country’s economic recovery.

ITV Plc rallied 6.9 percent as index-tracker funds bought the shares after MSCI said it will add the U.K.’s biggest commercial broadcaster to its indexes. Old Mutual Plc climbed 5.4 percent after a person with knowledge of the situation said Standard Chartered Plc may bid for Nedbank Group Ltd., a South African bank controlled by Old Mutual. Tullow Oil Plc rose 5 percent as Goldman Sachs Group Inc. recommended the shares.

The FTSE 100 Index advanced 49.24, or 0.9 percent, to 5,383.45, as seven stocks gained for each one that fell. The FTSE All-Share Index increased 1.1 percent and Ireland’s ISEQ Index rallied 1.2 percent at 4:50 p.m. in Dublin.

“Over the next few days the sovereign focus will likely shift a bit towards the U.K.,” Jim Reid, a strategist at Deutsche Bank AG in London, wrote in an e-mail to clients today. “With the European problems likely put on the back-burner for now we should start to get a clearer picture of how the U.K. plans to tackle what is expected to be one of the largest developed-market deficits in 2010.”

Emergency Budget

The FTSE 100 has tumbled 7.6 percent from this year’s peak on April 15 amid concern that Greece’s debt crisis will spread. The gauge surged 5.2 percent on May 10 after the European Union agreed to offer financial assistance worth as much as 750 billion euros ($948 billion) in a bid to stem the weakness in the region’s currency.

Cameron’s chancellor of the exchequer, George Osborne, will prepare an emergency budget within 50 days containing 6 billion pounds ($9 billion) of spending cuts to narrow the deficit. The measure is part of the Conservative Party’s deal with its coalition partners, the Liberal Democrats, announced yesterday.

Bank of England Governor Mervyn King said it is “imperative” that the U.K.’s deficit is dealt with sooner rather than later. Risks to the economic recovery have increased on investor concern about European sovereign debt, he said, calling on Cameron’s government to step up measures to tackle the U.K.’s shortfall.

ITV climbed 6.9 percent to 61.45 pence. Shares of the broadcaster will be added to MSCI indexes on May 26 after its semi-annual review. Separately, the U.K.’s new Conservative-led coalition government fueled hopes that regulators may be more favorable to the company.

Old Mutual

Old Mutual rallied 5.4 percent to 119 pence. Deliberations over Nedbank are at an early stage and may break down, said the person, who declined to be identified because the talks are private. Old Mutual, Africa’s biggest insurer, owns 52 percent of Nedbank, which has a market value of about 69 billion rand ($9.2 billion).

Tullow Oil gained 5 percent to 1,142 pence. Goldman Sachs upgraded the shares to “buy” from “neutral.” Separately, the company said it expects to receive approval from the Ugandan government for its planned purchase of assets from Heritage Oil Plc “in the next few weeks.”

Soco International Plc, a U.K. oil producer in Africa and Asia, advanced 8.8 percent to 1,761 pence after Goldman Sachs Group Inc. raised the stock to “buy” from “neutral.”

Compass Group Plc rose 5.3 percent to 557.5 pence. The world’s largest catering company said first-half profit advanced 17 percent as it gained new food-service contracts.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net.

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