U.K. Stocks Advance the Most in a Week; Rolls Royce Gains

U.K. stocks climbed to a three-week high before the U.S. Federal Reserve releases a statement that may initiate another round of bond buying to spur economic growth.

Rolls-Royce Holdings Plc rose 3.1 percent for the biggest advance on the FTSE 100 Index. Resolution Ltd. and Vodafone Group Plc also advanced. BAE Systems Plc dropped 7.3 percent after entering merger talks with France’s European Aeronautic, Defence & Space Co. Next Plc declined 7.2 percent after the retailer reported “disappointing” sales growth.

The FTSE 100 Index gained 37.84 points, or 0.7 percent, to 5,819.92 at the close in London. The broader FTSE All-Share Index climbed 0.6 percent today, while Ireland’s ISEQ Index added 0.2 percent.

“The consensus is that more quantitative easing is coming and so some investors have attempted to jump the gun by picking up equities ahead of the decision,” said Angus Campbell, head of market analysis at Capital Spreads. “Today’s session has by no means been a convincing rally, but once again we’ve seen willingness from buyers to try and push beyond recent highs.”

The FTSE 100 has increased 11 percent since the 2012 low on June 1 amid speculation central banks will do more to support growth and stabilize financial markets. The gauge last week climbed 1.5 percent after the European Central Bank agreed to an unlimited bond-buying plan to help lower borrowing costs.

Fed Stimulus

The Federal Open Market Committee’s two-day meeting began in Washington yesterday. Officials may agree on a third round of bond purchases, according to almost two-thirds of economists in a Bloomberg survey.

The previous two rounds of quantitative easing totaling $2.3 trillion have failed to revive the labor market, which Fed Chairman Ben S. Bernanke said last month is a “grave concern.”

Rolls-Royce climbed 3.1 percent to 854 pence, the biggest advance in seven weeks amid merger activity in the European defense sector.

BAE Systems, Europe’s largest defense company, yesterday confirmed it is in merger talks with France’s EADS. The news sent the shares down 7.3 percent to 337.1 pence today, paring some of yesterday’s 11 percent rally,

Barclays Plc recommended selling BAE shares “in the near term,” even as they retained an overweight rating, similar to buy, on the stock. The shares had risen 28 percent in 2012 based on yesterday’s closing price.

Merger Savings

“The market may have to revisit its initial price reaction,” wrote Barclays analysts including Carter Copeland in a report to clients dated today. “We’re waiting for additional details around the sources and anticipated timing of the savings before we draw any firm conclusions.”

Vodafone Group, the second-heaviest weighted stock on the FTSE 100, gained 1.9 percent to 177.35 pence. Resolution, the insurance buyout firm founded by Clive Cowdery, gained 1.9 percent to 221.4 pence.

Elsewhere, Next dropped 7.2 percent to 3,320 pence after the second-largest clothing retailer said the period since the end of July has been “unusually quiet.” The company still reported first-half profit that beat analyst estimates.

Debenhams Plc, the U.K.’s second-largest department-store chain, fell 1.8 percent to 98.25 pence. Marks & Spencer Group Plc, the country’s biggest clothing retailer, slid 1.3 percent to 369.7 pence.

Home Retail Group Plc declined 4.6 percent to 94.85 pence as second quarter sales at the company’s Homebase unit fell 3.7 percent, missing analysts estimates for a 2.6 percent drop.

Royalty Fees

Imagination Technologies Group Plc dropped 7.2 percent to 566 pence after the company, which supplies components to Apple Inc., said its royalty rate had dropped as more people bought cheaper smartphones.

The shares soared to the highest price in 18 years in March after Goldman Sachs Group Inc. said royalties from designs used in Apple’s iPad and other products would boost earnings.

Premier Farnell Plc rallied 11 percent to 190 pence. The company said it expects growth to return in the second half of the year after reporting a 0.4 percent increase in year-on-year revenue increase in August.

Centaur Media Plc jumped 9.5 percent to 40.25 pence after reporting an 18 percent increase in full-year adjusted earnings before interest, taxes, depreciation and amortization to 11.7 million pounds ($19 million).

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