UKX FTSE 100 Index

By Carla Mozee, MarketWatch

RBS upgraded; pound whipped around; Sainsburys shares rise

U.K. blue-chip stocks clung close to record highs Wednesday, as bank shares rose while those of home builders lost ground.

The pound, meanwhile, recovered losses suffered after the release of U.K. economic data.

What the market is doing: The FTSE 100 index was up 0.1% at 7,738.58, but it has dipped into negative territory during the session. Financial, tech, oil and gas and basic material shares rose, but health-care, telecom, industrial and consumer-related stocks fell.

On Tuesday, the index moved up 0.5% to 7,731.02, a fresh all-time closing high (http://www.marketwatch.com/story/ftse-100-flirts-with-fresh-record-as-morrisons-leads-retailers-higher-2018-01-09).

The pound on Wednesday bought $1.3545, clawing back from an intraday low of $1.3482. Sterling late Tuesday in New York fetched $1.3539.

The 10-year gilt yield rose less than 1 basis point to 1.28%, according to Tradeweb. Yields rise when prices fall.

Read:These 5 charts are all 'flashing green' for more U.K. stock records (http://www.marketwatch.com/story/these-5-charts-are-all-flashing-green-for-more-uk-stock-records-2018-01-08)

What's driving the market: A tug-of-war between sectors drove action on the London benchmark, even as the positive investing mood for stocks persisted.

FTSE 100 bank stocks rose a collective 2%, according to FactSet data, with Royal Bank of Scotland Group PLC (RBS.LN) higher after a ratings upgrade.

Bank stocks across Europe outperformed the broader market Wednesday, keying off sector gains on Wall Street on Tuesday as the U.S. 10-year Treasury yield crossed above 2.5% for the first time since March 2017 (http://www.marketwatch.com/story/treasury-yields-rise-as-bank-of-japan-cuts-bond-buying-2018-01-09). Higher long-term yields can help lift profit at banks.

On Wednesday, that 10-year yield surged toward 2.6% following a Bloomberg report that China is considering halting or slowing purchases of U.S. Treasuries. (https://www.bloomberg.com/news/articles/2018-01-10/china-officials-are-said-to-view-treasuries-as-less-attractive)

Meanwhile, shares of home builders fell after Taylor Wimpey PLC (TW.LN) said it expects yearly results to be in line with expectations.

The "large increase in the U.K. trade balance put pressure on the pound," during the session, said David Madden, market analyst at CMC Markets UK, in a note, referring to a clutch of economic data released Wednesday. "In November, the U.K. trade deficit increased to GBP12.23 billion ... and that figure eclipsed the stronger-than-expected manufacturing and industrial output," reports, he said.

But the pound recaptured the $1.35 handle as the U.S. dollar suffered in the wake of the report that China may shift gears on purchases of U.S. debt.

What strategists are saying: "With stocks continuing higher, bond markets continue to struggle, with yields hitting some of the highest levels in a decade," said James Hughes, chief market analyst at Axi Trader, in an early Wednesday note.

"Inflation is a big issue for many investors moving into 2018, especially after the Fed had dismissed the sluggish rate in its last couple of policy setting meetings. So with the U.S. CPI reading due on Friday afternoon, it is a case of bond markets waiting for the release," Hughes said in a note.

Retail in focus: J Sainsbury PLC shares (SBRY.LN) climbed 1.4% after the supermarket chain said same-store sales for the third quarter of fiscal 2018, which includes the key Christmas trading period, grew 1.1% (http://www.marketwatch.com/story/sainsburys-upbeat-on-profit-christmas-sales-rise-2018-01-10). But the company also said "market conditions remain challenging" and that it's cautious about the consumer environment in the year ahead.

But shares of rivals Wm Morrison Supermarkets (MRW.LN) and Tesco PLC (TSCO.LN) were down 1.5% and 0.9%, respectively.

Stock movers: Royal Bank of Scotland shares (RBS.LN) (RBS.LN) charged up 3.7% after a ratings upgrade to overweight from equal-weight at Morgan Stanley, which reviewed U.K. banks in a research note. But Lloyds Banking Group PLC (LLOY.LN)(LLOY.LN) and Barclays PLC (BCS) (BCS) were downgraded to equal-weight from overweight. Barclays shares were off 0.8%, while Lloyds shares turned higher, rising by 0.7%.

Shares of banking heavyweight HSBC Holdings PLC (HSBA.LN) (HSBA.LN) climbed 2.9% and Standard Chartered PLC (STAN.LN) bounced up 3.3%.

Home builder Taylor Wimpey PLC (TW.LN) said its 2017 results should meet analyst expectations as home completions increased, but investors sent shares sliding by 4.5%. The company said it plans on returning about GBP500 million ($677 million) in dividends (http://www.marketwatch.com/story/taylor-wimpey-to-return-500-mln-to-shareholders-2018-01-10) to shareholders in 2018.

Shares of rival construction companies were under pressure. Persimmon (PSN.LN) lost 2.6%, and Barratt Developments PLC (BDEV.LN) fell 2.2%.

Economic data: The U.K. goods trade deficit with the rest of the world widened slightly in November to GBP12.2 billion from the revised October figure of GBP11.7 billion, the Office for National Statistics said. Separately, manufacturing output rose 0.4% in November (http://www.marketwatch.com/story/uk-manufacturing-grows-for-7th-month-in-a-row-2018-01-10), a sign that producers are benefiting from the pound's weakness and strong global demand.

(END) Dow Jones Newswires

January 10, 2018 08:32 ET (13:32 GMT)

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