LONDON MARKETS: FTSE 100 Rises After Surprise PMI Jump

By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- U.K. stocks rose on Monday after better-than-expected business-activity data pointed to an improvement in economic growth, although HSBC Holdings PLC weighed on the benchmark index after disappointing earnings results.

The FTSE 100 index added 0.2% to 6,661.93, after posting a 1.4% weekly gain on Friday.

Most shares traded in positive territory, helped higher by an upbeat reading on the U.K. services sector. The Markit/CIPS headline business-activity index rose to an over six-and-a-half year high of 60.2 in July, up from 56.9 in June and beating expectations of a 56 reading. A reading above 50 indicates expansion, with the July data marking the seventh straight month above the neutral mark.

"While this is only one month of data in Q3, it certainly indicates that our current forecast of 0.5% GDP growth is on the conservative side. The current level of the PMIs are, on a mechanical projection, consistent with growth of 1.2% in Q3, a much sharper acceleration than we, or indeed most forecasters, are currently expecting," said Jens Larsen, chief European economist at RBC Capital Markets.

While the data spurred optimism about the U.K. recovery, the benchmark index failed to stage a solid rally as shares of heavyweight bank HSBC (HBC) dropped 4%. The bank reported a 23% rise in first-half net profit, but fell short of analyst expectations. Meanwhile, revenue fell 7%.

Also in the banking sector, Lloyds Banking Group PLC (LYG) climbed 3.8% after the Financial Times reported that the bank aims to start paying out up to 70% of its earnings in dividends by about 2015. A representative from Lloyds was not immediately available to comment.

Mining firms were also on the rise, after official Chinese data out over the weekend showed the non-manufacturing Purchasing Managers' Index rose to 54.1 in July from 53.9 in June, reversing three consecutive months of declines. Meanwhile, HSBC's Services Business Activity Index came in at 51.3 on Monday, staying above the 50-point threshold that indicates an improvement in activity, and unchanged from the level seen in the June survey.

Miners tend to move on growth indications from China as the country is a major user of natural resources. Shares of Vedanta Resources PLC rose 2.9%, Anglo American PLC picked up 1.6% and Glencore Xstrata PLC (GLCNF) added 1%.

Outside the main index in London, shares of Thomas Cook Group PLC added 5.4% after Citigroup lifted the travel agency to buy from neutral.

Drax Group PLC rose 3.4% as Goldman Sachs lifted the utility firm to buy and added it to the conviction list.

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