U.K. Stocks Rise as ECB Agrees on Unlimited Bond Buying

U.K. stocks surged the most in month after European Central Bank President Mario Draghi said policymakers agreed to an unlimited bond-purchase program to help regain control of interest rates in the euro area.

Lloyds Banking Group Plc (LLOY) and Vedanta Resources Plc (VED) led banks and mining companies higher, rising more than 5 percent each. Whitbread Plc (WTB) jumped 5.3 percent after the owner of Premier Inn budget hotels reported higher sales. William Morrison Supermarkets Plc added 4.3 percent after the supermarket chain’s earnings beat analyst estimates.

The FTSE 100 Index (UKX) surged 119.48 points, or 2.1 percent, to 5,777.34 at the close in London, its biggest gain since Aug. 3. The gauge has climbed 9.8 percent from its 2012 low on June 1, boosted by expectations that central banks will do more to support growth. The broader FTSE All-Share Index advanced 2.1 percent while Ireland’s ISEQ Index jumped 1.7 percent.

“The markets clearly liked what Mario Draghi had to say as he has effectively placed the central bank in the position of being the lender of last resort,” said Angus Campbell, head of market analysis at Capital Spreads in London. “The big question is will it be enough to draw a line under the crisis.”

Draghi said at a press conference in Frankfurt that the central bank will have a “fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area.”

The program “will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro,” he said after the ECB held its benchmark rate at a record low of 0.75 percent, as predicted by economists.

The Bank of England also today kept its bond-purchase target at 375 billion pounds ($596 billion), as forecast by the majority of economists in a Bloomberg News survey.

Banks, Miners

Lloyds paced a rally in European banks as bond yields declined in Italy, Ireland and Spain. The U.K.’s second-biggest government-aided bank jumped 6.7 percent to 36.2 pence. Barclays Plc (BARC) increased 6.1 percent to 193.05 pence and Royal Bank of Scotland Group Plc (RBS) advanced 4.8 percent to 233.5 pence.

Mining companies climbed, sending a gauge of metal producers up 4.1 percent. Vedanta Resources jumped 5.8 percent to 928 pence, Antofagasta Plc (ANTO) rallied 5.6 percent to 1,157 pence and Xstrata Plc (XTA) rose 4.7 percent to 979 pence.

Goldman Sachs Group Inc. today said Chinese commodity demand is set to rebound into the final quarter as the world’s largest user of energy and metals will see more infrastructure projects and construction.

Lonmin Talks

Lonmin Plc (LMI) jumped 7.3 percent to 568 pence after the platinum producer, whose main mine has been shut since Aug. 10 because of a violent strike that led to the death of 44 people, agreed with three labor unions to reopen wage talks.

The company signed an agreement with the National Union of Mineworkers, the United Association of South Africa and the Solidarity labor union. The Association of Mineworkers and Construction Union has yet to sign.

Under the agreement, the miners will return to work at the operation, which accounts for a 10th of global platinum output, by 7 a.m. local time on Sept. 10.

Randgold Resources Ltd. (RRS) climbed 5.3 percent to 6,795 pence after JPMorgan Chase & Co. upgraded the gold producer to overweight from neutral, the equivalent of a buy recommendation.

Whitbread Rises

Whitbread gained 5.3 percent to 2,210 pence after the company reported a 4.3 percent increase in like-for-like sales in the 24 weeks to Aug. 26, while total sales climbed 14.3 percent.

“We remain on track to deliver our ambitious growth programme, with our strong brands winning market share,” said Chief Executive Officer Andy Harrison in a statement.

Morrison climbed 4.3 percent to 292.7 pence after the smallest of the four main U.K. supermarket chains reported that first-half underlying pretax profit rose 0.7 percent to 445 million pounds, topping the median analyst estimate of 431.5 million-pounds.

The retailer also announced plans to open convenience stores in London and sell wine online to boost profit growth.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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