U.K. Stocks Advance After Weekly Rally as Lloyds Climbs

U.K. stocks advanced to a one-month high as investors speculated that Britain’s economic recovery and the current valuations will help support equity markets.

Lloyds Banking Group Plc (LLOY) added 3.8 percent as a person familiar with the matter said former Standard Chartered Plc Chairman Mervyn Davies may lead a bid for a stake. Bovis Homes Group Plc (BVS) rose the most in almost six years after saying that housing profit increased in the first half.

The FTSE 100 advanced 74.55 points, or 1.2 percent, to 6,450.07 at the close in London. The gauge rallied 2.6 percent last week, its second-largest weekly increase this year, as the European Central Bank and the Bank of England pledged to keep interest rates low for the foreseeable future. The FTSE All-Share Index also jumped 1.2 percent today, while Ireland’s ISEQ Index climbed 0.5 percent.

“The U.K. economy is fundamentally improving and will be good enough to provide support for the markets,” Dan Morris, a market strategist at JPMorgan Asset Management in London, said in a phone interview. “Valuations are still attractive for Europe and the U.K., and though I don’t expect extremely strong numbers this quarter, earnings growth globally should be decent.”

The number of shares trading hands on FTSE 100-listed companies was 18 percent lower than the average of the past 30 days, data compiled by Bloomberg shows.

Earnings Valuations

The FTSE 100 (UKX) is trading at 11.95 times projected earnings, according to data compiled by Bloomberg, rebounding from a low of 11.34 on June 24. That’s still below May’s peak of 12.62 times estimated earnings, which was the highest since January 2010. The gauge closed at a 13-year high on May 22.

Britain’s economy may be headed for a period of “strong catch-up growth”, according to Capital Economics Ltd. Capital forecast today that the economy may grow at a 4 percent annual rate in the second half of this decade. It said the recession appears to have done little permanent damage and the economy should benefit as its supply potential recovers.

The often-pessimistic forecaster projected growth of just 0.2 percent for 2013, according to a Bloomberg survey of economists last month. That was the lowest among 47 predictions for gross domestic product in the U.K.

Forecasts Raised

Barclays Plc raised its economic growth forecast for the U.K. to 1.1 percent for this year and 2.1 percent in 2014, from previous estimates of 0.9 percent and 1.8 percent, respectively. Barclays economist Simon Hayes cited increasing household consumption and rising home prices in the note dated July 5.

JPMorgan Chase & Co. also increased its U.K. growth forecast to 1.6 percent from 1.2 percent for 2013, and to 2.6 percent from 2 percent for next year.

Alcoa Inc. will kick off the U.S. earnings season today when it posts second-quarter results after markets close. The biggest U.S. aluminum producer becomes the first company in the Dow Jones Industrial Average (INDU) to report earnings. JPMorgan posts its results on July 12.

The euro area’s finance ministers met from 3 p.m. in Brussels today to discuss Greece’s progress in meeting the conditions needed to obtain further aid from the International Monetary Fund, European Central Bank and European Commission.

Lloyds added 3.8 percent to 67.10 pence, its highest price since February 2011. Davies has approached Standard Life Plc and sovereign-wealth funds about making an offer for some of the government’s 39 percent holding in the lender, said the person, who asked not to be identified because the talks are private.

Temasek’s Offer

The Sunday Times reported that Temasek Holdings Pte Ltd., Singapore’s state-owned investment company, had made a preliminary offer to acquire about 10 percent of Lloyds for 4.5 billion pounds ($6.7 billion). Temasek declined to comment on market speculation and rumors.

Royal Bank of Scotland Plc, which is 65 percent owned by the U.K. government, jumped 4.4 percent to 288.8 pence.

Bovis rose 7.1 percent to 830 pence, its highest price since July 2007. The housebuilder said in a statement that increased volume, higher average sale prices and improving profit margins caused housing profit to climb in the first half of 2013.

Hikma Pharmaceuticals Plc (HIK) rallied 5.6 percent to 1,050 pence, the highest price since its initial public offering in November 2005. The drugmaker predicted that revenue will grow 17 percent this year, compared with an earlier forecast for growth of 13 percent.

Betfair Group Plc dropped 4.5 percent to 840 pence, its biggest decline in a year. Softbank Corp.’s Charlton unit was selling as many as 11 million shares in the bookmaker through Deutsche Bank AG.

To contact the reporter on this story: Sofia Horta e Costa in London at shortaecosta@bloomberg.net

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

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