Market Report: Profits taken but banks are backed

Day traders appeared to be taking profit from the recent surge in the share prices of the UK's banks today, but the City's fund managers are backing the banking sector for the first time since 2007. A trusted fund manager survey by Bank of America Merrill Lynch today declared that global investors have now shifted their stance on financial stocks, the first time since February 2007.

The change is evident in the share prices of Lloyds Banking Group and Barclays. Lloyds, which edged down 0.55p to 54.37p today, is up more than 9 per cent since the beginning of the year and was last year's best-performing stock. Barclays, down 3.5p to 295.4p today, is up more than 7 per cent since the start of 2013.

Investors are keen on banks but still view them as the equity market's most undervalued sector, Merrill's survey suggests.

Banks will begin to move into further focus today as the United States' financial reporting season kicks off with JPMorgan and Goldman Sachs, followed by Citigroup and Bank of America tomorrow. the UK banks' reporting season starts next month. Banks have been in favour due to the relaxation of liquidity rules but Merrill Lynch's report also found asset allocators assigned more funds to equities than at any time since February 2011. Confidence in the world's economic outlook has reached its most positive level since April 2010 and appetite for risk is now at its highest in nine years. An increasing number of those surveyed reckon equities are undervalued, particularly in Europe.

A favourite for punters today was British fashion brand Burberry. It sashayed up the top-flight index when it revealed forecast-beating third-quarter results on the back of strong Christmas sales. Its shares rose 61p to 1,386p. But some early sellers have lost out. Angus Campbell, the head of sales at Capital Spreads, said: "Clients were really bullish on Burberry throughout December, but in the new year they repositioned themselves with a slightly more bearish stance. Buyers and sellers of the stock were split 50/50."

These results, and others, helped to boost the blue-chip index. Investors were concerned about further issues with US fiscal policy and the benchmark index dipped in afternoon trade, only to pick up again later to close up 9.45 points at 6,117.31.

UBS's analysts were keen on publisher Pearson and the shares gained 39p to 1,221p. The Swiss bank's square-eyed scribblers also rated shares in ITV. They claimed the TV ad market is having a better start to the year than expected. UBS's Tamsin Garrity increased her ad assumption for this year by 3 per cent, up from zero.

Not only is the ad market better, ITV has benefited from a spat involving rival Channel 4 and Sir Martin Sorrell's media giant WPP. Channel 4 and its biggest advertiser have now kissed and made up but Ms Garrity said the "deal delay" helped ITV to outperform. The shares were up 0.7p to 112.4p.

Bid rumours re-emerged for BG Group. The gas group lost about 30 per cent of its share price last year after it admitted production declines. Analysts think the stock looks cheap and vague bid rumours have surrounded it for months. The shares ticked up 25.5p to 1,073.5p. Microchip designer Arm Holdings suffered after the sell-off of Apple shares following reports of weaker-than-expected demand for the new iPhone 5, where some of its chips are used. Analysts at Morgan Stanley and Investec downgraded the stock and it ended near the bottom of the benchmark index, down 32p to 841p.

Keeping it company was miner Anglo American. It announced its platinum subsidiary Anglo American Platinum has slashed platinum output from its mines driving the white metal's price to three-month highs.

Its shares dug down 75.5p to 1,961p as rumours circulated that it will be subject to regulatory checks and fines. But the move helped mid-cap miner Lonmin, up 13.4p to 346p, and Aquarius Platinum put on 7p to 72p.

Online supermarket Ocado reported a rise in sales and the shares lifted 0.4p to 84.5p but remain way below its 2010 flotation price of 180p.

Small-cap index equipment hire group Lavendon's shares jumped 14.75p to 159.25p after it said its full-year results would be at the upper end of its expectations.