FTSE moves above 5500 as US recovery signs reassure

Thursday's better-than-expected jobs and trade data was followed yesterday by a 1.3 per cent rise in US wholesale inventories – much higher than the 0.4 per cent predicted improvement and a sign that firms expect retail sales will pick up.

Inventories surged by the largest amount in two years in July, the US Commerce Department report said. It was the steepest gain since July 2008.

A restocking of inventories has helped drive the economy's recovery, but analysts say slowing demand has likely left businesses with ample stocks and they expect the boost from inventories to fade in the second half of the year.

A quickened pace of inventory accumulation accounted for 0.6 percentage points of the US economy's 1.6 per cent annual growth rate during the second quarter.

"In general there has been an increase in inventories at a time when the economy is slowing down," said Brian Bethune, an economist with IHS Global Insight in Lexington, Massachusetts.

The report settled the nerves of investors, with the FTSE 100 Index building on its recent gains to close 7.48 points higher at 5501.64. There was little movement in the pound, which was slightly lower against the dollar and euro.

The decent session for London shares was achieved despite uncertainty for banks ahead of rules due to be finalised this weekend that will require firms to hold capital reserves of at least 7 per cent.

While most banks' capital ratios are well above that, it represents a marked increase on the capital requirements seen before the financial crisis.

The sector has endured a testing week after high-profile leadership changes at Barclays and HSBC and amid reports that recent stress tests into 91 EU banks were not rigorous enough.

Barclays fell 41/4p to 3191/8p but Lloyds Banking Group gained for a second straight session, after a note from UBS on Thursday argued that it looked "overcapitalised" following its 13.5 bn rights issue and as loan losses inherited from HBOS came under control.

Lloyds shares rose another 1p to 755/8p, while fellow part-nationalised firm Royal Bank of Scotland lifted 3/8p to stand at 481/2p.

Tullow Oil was the biggest top-flight faller as hopes of a takeover approach for the exploration firm started to fade. Shares fell 29p to 1234p.

In a quiet session for corporate news, shares in construction firm Morgan Sindall jumped 7 per cent after it struck a 28m deal to buy the bulk of the social housing contracts operated by collapsed firm Connaught.

Morgan's Staffordshire-based Lovell subsidiary said the newly-acquired contracts would generate around 200m in additional annual revenues. Shares were 47p higher at 7081/2p.

Meanwhile, JD Wetherspoon shares fell despite a 7 per cent rise in the pub chain's annual profits and amid signs of a good start to its new financial year.

Like-for-like sales were 1.5 per cent higher in the six weeks to September 5, but this failed to satisfy investors as shares declined 21p to 4221/2p.

Property website Rightmove tracked in the opposite direction as investors considered the implications of German publisher Axel Springer's bid for French property website company SeLoger.com.

With analysts pondering the chances of a similar move for the UK's biggest player, Rightmove shares edged 5 per cent higher, or 321/2p to 740p.

The biggest Footsie risers were Icap up 167/8p to 4541/2p, Aviva ahead 123/4p to 4091/4p, TUI Travel up 7p to 229p and 3i Group ahead 7p to 279p. The biggest fallers were Tullow Oil, Cairn Energy off 10p to 4347/8p, and ENR down 141/2p to 8391/2p.