U.K. Stocks Rally Most in Two Weeks; Barclays Advances

Oct. 1 (Bloomberg) -- U.K. stocks jumped the most in more than two weeks as stress tests bolstered confidence in the Spanish banking system and U.S. manufacturing unexpectedly expanded last month.

Barclays Plc led a rally in banks, climbing 3.5 percent, after Liberum Capital advised investors to buy shares in British lenders. Xstrata Plc gained 2.4 percent after the board recommended Glencore International Plc’s $33 billion sweetened takeover offer. Homebuilders climbed as Citigroup Inc. upgraded Taylor Wimpey Plc.

The FTSE 100 Index gained 78.38 points, or 1.4 percent, to 5,820.45 at the close in London, the largest advance since Sept 14. The gauge fell to the lowest level since Sept. 5 last week amid concern the Federal Reserve’s latest bond buying program will fail to boost growth. The FTSE All-Share Index rose 1.3 percent today, while Ireland’s ISEQ Index increased less than 0.1 percent.

“The stress tests are another hurdle overcome in easing the sovereign-debt crisis,” said Henk Potts, an equity strategist at Barclays Plc in London. “It’s absolutely right to rally on the back of the tsunami of stimulus we have seen. We still believe investors should be using any weakness to build up a correct exposure to equities.”

Banks led stocks higher in Europe as the Spanish stress tests, released after the close of trading on Sept. 28, reported a capital deficit of 59.3 billion euros ($76 billion) for the country’s lenders, less than the 100 billion euros agreed as part of a bailout.

Santander, BBVA

The tests of 14 lenders showed seven, including Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA, the country’s largest banks, had no capital shortfall.

U.K. stocks extended their advance after the Institute for Supply Management’s U.S. factory index climbed to 51.5 in September from 49.6 a month earlier, topping the 49.7 median economist forecast in a Bloomberg survey. Readings above 50 represent expansion.

Barclays advanced 3.5 percent to 222.35 pence, rebounding from two-week decline. Liberum upgraded Barclays, Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc to buy, citing bank deleveraging and reduced tail risks.

RBS gained 3.7 percent to 266.4 pence while Lloyds climbed 3 percent to 39.98 pence.

Xstrata increased 2.4 percent to 980 pence after the board recommended shareholder’s back Glencore’s takeover offer after gaining assurances on board composition and delinking votes on the bid and bonus payments.

Xstrata Resolutions

Shareholders will be asked to consider two resolutions: one to approve the takeover along with 144 million pounds ($232 million) of retention bonuses and a second that excludes the pay question, Xstrata said in a statement today. This means the deal can proceed even if the incentive payments are rejected.

Glencore, the Baar, Switzerland-based commodities trader, slipped 0.3 percent to 342 pence.

Taylor Wimpey increased 2.6 percent to 55.7 pence as Citigroup upgraded the homebuilder to buy from neutral and raised its share-price estimate by 31 percent to 67 pence.

A gauge of U.K. homebuilders rose the most in almost a month, climbing 1.7 percent, as Citigroup also reiterated its buy recommendation for Bellway Plc, Berkley Group Holdings Plc, Bovis Homes Group Plc and Persimmon Plc.

“We continue to believe that sector margins and profits will move steadily higher in the next few years,” Clyde Lewis and Aynsley Lammin wrote in a report. “Despite the strong run in the sector, we still believe there is some good upside to come over the next 12 months.”

Wolseley Plc gained 1.6 percent to 2,683 pence before the supplier of plumbing reports earnings tomorrow. The stock fell 2.8 percent last week.

IAG Advances

Elsewhere, International Consolidated Airlines Group paced European airlines higher, gaining 3.6 percent to 154.3 pence. The International Air Transport Association raised its 2012 global airline profit forecast 37 percent to $4.1 billion as carriers slow capacity growth to cope with higher fuel prices and waning travel demand.

AstraZeneca Plc slid 1 percent to 2,925 pence after the drugmaker suspended share buybacks as the board and new Chief Executive Officer Pascal Soriot review the company’s strategy. AstraZeneca has repurchased $2.3 billion of stock this year, compared with an initial target of $4.5 billion, prompting speculation it will embark on larger takeovers.

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