Market Report: Barclays rises as bulls reclaim FTSE 100

The banking sector rally persisted last night, with Barclays climbing to its highest level since early October as the FTSE 100 moved into bull market territory.

The lender rose to 281.5p, up 9.8 per cent or 25p, after analysts at RBS raised their earnings estimates, telling clients that the group, which has managed to maintain a distance from the Treasury by seeking support in the Middle East, was on track to outperform its domestic banking peers.

"Barclays looks set to deliver a 28 per cent uplift in marked-to-market TCE [tangible common equity]. Progress at Lloyds and HSBC is much more muted on this front," the broker said, highlighting the likely benefits of strong capital market revenues, which are expected to be well ahead of peers. In line with its bullish views, RBS upgraded the stock to "buy" from "sell".

In the wider sector, Lloyds Banking Group was 8.2 per cent or 8.5p ahead at 112p, while the Royal Bank of Scotland climbed to 41.8p, up 13.6 per cent or 5p.

Overall, the FTSE 100 swung to 4,243.71, up 1.3 per cent or 54.12 points, while the FTSE 250 climbed to 7,528.95, up 2.3 per cent or 170.97 points.

Last night's rally came at the end of the benchmark's best month since April 2003, and pulled the FTSE 100 into bull market territory, which is defined as a 20 per cent rise from recent lows. Since hitting 3,512.09 in early March, the index is up by almost 21 per cent.

Concern about the impact of swine flu weighed on Fresnillo, the Mexican silver miner, which retreated to 535p, down 2.8 per cent or 15.5p. The worries offset reassurances from the company, which said that while it was vigilant and taking precautionary measures, its mines remained open for business.

In the wider mining sector, hopes of an uptick in Chinese demand cheered investors, who shrugged off lacklustre production reports from Anglo American, up 42p at 1484p, and Kazakhmys, up 24p at 535p.

BHP Billiton was also firm, gaining 3 per cent or 42p to 1424p thanks to RBC Capital Markets, which began covering the stock with an "outperform" rating.

"In the diversified universe BHP Billiton has one of the strongest financial positions with net debt of $4.2bn, only 11 per cent of equity at 31 December 2008," said RBC. "With [around] $6.3bn of new bonds issued since January, BHP is well funded for its capital projects through 2011," the broker added, noting that the strong balance sheet allowed the group to take a "flexible approach to potential acquisitions".

Elsewhere, Millennium & Copthorne Hotels fell to 221p, down 3.5p, after Morgan Stanley called time on the recent strength in the hotels sector. "We think this rally in hotel stocks has gone too far, too soon, and would advise investors to remain patient before putting money to work," the broker said, downgrading Millennium to "underweight" with a 180p target price, from "equal weight" with a 260p target.

Short sellers continued to abandon their downside bets as buyers – emboldened by news of Punch Taverns' progress in reducing its debt in the session before – moved into parts of the pubs sector, with Punch surging to 155p, up 31.6 per cent or 37.2p, as the bears moved out. Similar factors were said to be at play around Enterprise Inns, which advanced to 164.25p, up 14.7 per cent or 21p.

Mark Brumby, a leisure analyst at Blue Oar Securities, remained cautious, however, saying that while Punch appeared to be doing the right things, "the hand that it's been dealt is far from an ideal one, and while we could see the group's shares going better in the short term, we would continue to avoid them other than on a trading view".

Also on the upside, BBA Aviation climbed to 106p, up 14 per cent or 13p, as investors welcomed news of in-line trading. In response, Panmure Gordon raised its target for the stock to 85p from 65p, noting that the company had succeeded in coping with market challenges in the first quarter.

"This is necessary because its debt pile is so high, and it will trade close to its covenants through 2009," the broker said, sticking to its "hold" stance on the shares.

The engineering group Charter International was also higher, gaining 6.5 per cent or 34p to 559p, thanks to Citigroup, which upped its target for the stock to 600p from 480p.

Advising investors to "buy", the broker said that although Charter had performed well since the beginning of this year, it was still more than 50 per cent off its peak. Citi also highlighted the company's balance sheet strength, pointing to Charter's £52m net cash position at the end of the first quarter of this year.

Among smaller companies, Lipoxen, the AIM-listed biopharmaceutical group, swelled to 21.75p, up more than 200 per cent or 14.75p, after saying that, along with collaborators at Cambridge Biostability, it had achieved positive pre-clinical results for an influenza vaccine that provides enhanced levels of immunity against an early strain of the H1N1 virus – the virus behind swine flu.