U.K. Stocks Advance on U.S. Budget Optimism

U.K. stocks gained, snapping three days of losses, on optimism that U.S. President Barack Obama and Republicans are closer to agreeing on a new budget.

Vedanta Resources Plc (VED) followed a measure of European commodity shares higher. Rolls-Royce Holdings Plc (RR/) advanced 2.5 percent after signing a $1 billion contract with Japan’s Skymark Airlines. Pearson Plc rose 2.6 percent after Exane BNP Paribas added the shares to its “key ideas” list.

The FTSE 100 Index (UKX) added 0.4 percent to 5,935.9 at the 4:30 p.m. close in London. The equity benchmark has rallied 5.9 percent from a low on Nov. 16 as U.S. lawmakers discussed measures to avoid automatic tax increases and spending cuts next year. The broader FTSE All-Share Index climbed 0.4 percent, while Ireland’s ISEQ Index rose 0.6 percent.

“The trend is pretty good and that should continue in January,” said Lionel Heurtin, a Paris-based fund manager at Ofi Asset Management, which oversees $1.3 billion in stocks. Recent low volumes “don’t mean we won’t have a year-end rally,” he said.

Obama, who met Republican House Speaker John Boehner yesterday, softened his stance on the budget, according to a person familiar with the talks. The president lowered his demand for new tax revenue by $200 billion and offered to increase taxes starting from incomes of $400,000 rather than $250,000.

Boehner and Majority Leader Eric Cantor will give House Republicans an update on the negotiations today, said a leadership aide who requested anonymity to discuss the plans.

Credit Plan

In the U.K., the Bank of England said early data show that its credit-boosting plan is working as expected. The Funding for Lending program is helping to lower bank-funding costs, which may spur a gradual pickup in mortgage approvals, the central bank said.

Vedanta rose 2.5 percent to 1,143 pence. A gauge of commodity shares was the best performer among the 19 industry groups in the Stoxx Europe 600 Index.

Rolls-Royce added 2.4 percent to 880 pence. Europe’s largest maker of engines for commercial aircraft and ships signed a $1 billion contract with Japan’s Skymark Airlines for Trent 900 engines to power six Airbus A380 aircraft.

Pearson (PSON) increased 2.6 percent to 1,205 pence. Exane, which maintained its outperform recommendation on the publisher’s shares, said the company is on a “cusp of a transformation” driven by technological advantage.

G4S Plc (GFS), a security provider, increased 2.7 percent to 257 pence. Panmure Gordon & Co. Plc raised its rating on the stock to buy from hold.

Whitbread Plc (WTB), a hotel and restaurant operator, gained 1.9 percent to 2,465 pence. The company raised 51 million pounds from the sale and leaseback of seven Premier Inn properties.

Heritage Oil Plc (HOIL), an oil and gas explorer, jumped 5.2 percent to 185.6 pence. The stock was raised to outperform at Macquarie Group Ltd.

Catlin Group Ltd. (CGL), an insurance underwriter, tumbled 1.6 percent to 489.1 pence. The company said it expects losses of about $200 million from Hurricane Sandy.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net

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

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