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GKN climbs on motor show hopes, while FTSE adds 2% on Greek hopes and central bank move

As leading shares moved higher for the third day, engineering group GKN was among the biggest risers.

The company, which supplies parts and systems for cars and aircraft, added 11.1p to 194.7p after a buy note from Evolution Securites following the start of the Frankfurt motor show. Putting a 330p a share price target on GKN, analyst Harry Philips said:

Our assessment of the mood out of this week’s Frankfurt auto show is one of resilience with growth in global auto production still a sensible planning assumption. Lear’s presentation on September 13 laid out a compound annual growth rate of 9% in BRIC production to 2016, 3% in Europe and 5% for North America. If this becomes a reality then global component suppliers with commanding market shares are going to do well and in this context, we are reiterating our buy on GKN.

The current price is factoring a repeat of the two profit warnings within five weeks in late 2008 – while understandable on one level, the view ignores a very different global inventory position, a very different and more positive mix profile in Europe in what is set to remain a flat market through 2012, GKN’s additional momentum from market share gains most notably with Ford in North America and the accelerating momentum in aerospace.

Markets were in positive territory from the off, with investors encouraged by France and Germany’s comments on Wednesday, suggesting they would not let Greece default. News in the afternoon of a co-ordinated move by central banks to pump more dollars into the struggling financial system helped the moods stay positive despite some mixed economic data from the US, not to mention the bn loss suffered by UBS thanks to a rogue traders.

By the close the FTSE 100 had climbed 110.52 points to 5337.54, while Germany’s Dax and France’s Cac were both up by more than 3%. Wall Street was around 100 points higher by the time London closed. Joshua Raymond, chief market strategist at City Index, said:

One cannot help think that the coordinated central bank action shown today to plug any liquidity crisis flies in the face of much of the rhetoric we have seen lately that there is no liquidity crisis at Europe’s banks. Today’s action appears to contradict that but nevertheless, the action has thus far been seen as a positive by investors.

Much of the lift we have seen in European markets will now be dictated by market confidence that European leaders can rally behind Greece and prevent the indebted nation from a default.

The day’s speculative story revolved around RSA Insurance, up 4.1p to 113.9p on talk of a possible bid at around 180p a share. Zurich Financial – which was also recently linked with Aviva – was one name mentioned, as was Australia’s QBE. The Sydney based company was last suggested as a buyer of RSA almost exactly three years ago.

Banks moved higher following the central banks’ move, also helped by a positive note from analysts at Nomura, which said this week’s report from the Independent Commission on Banking took some of the uncertainty out of the sector. It said:

We find it difficult to see this level of valuation as anything other than attractive and the shares as oversold. We therefore advocate a positive stance, particularly within a European bank sector context. UK banks are significantly less exposed to the current eurozone risks and have recapitalised.

It moved its recommendation from neutral to buy on HSBC, up 19.6p to 521.1p, and Barclays, 6p better at 158p. Meanwhile Lloyds Banking Group added 2.41p to 35.91p and Royal Bank of Scotland rose 0.92p to 23.72p.

But as investors moved into riskier assets and away from safe havens, gold lost more than to 75 an ounce. So Randgold Resources lost 205p to £67.30, Fresnillo fell 20p to £19.07 and African Barrick Gold dropped 21.5p to 595p.

On another busy day for retailers, B&Q owner Kingfisher pleased the market with a better than expected 24% jump in half year profits and news of the creation of 1,200 jobs. It shares ended 11.5p higher at 251.1p. Meanwhile homewares retailer Dunelm rose 24.8p to 451.9p after a 9% increase in full year profits to £83.6m. Booker, the cash and carry wholesaler, added 5.45p to 74.55p after it reported a 7.6% rise in second quarter revenues, boosted by strong fruit and vegetable sales.

Elsewhere chip designers Arm added 11.5p to 610p and Imagination Technologies 11.5p to 399p as Alex Jarvis and Paul Morland at Peel Hunt tipped them as possible takeover targets. They said:

We believe that some of the arguments around why neither is a take-over target could start to be undone. Given the massive shifts in business models that the IT industry’s old and new giants are going through, the ‘fear in their eyes’ and the steps they are willing to take to secure a future, we would not rule out the acquisition of Arm or Imagination, even by companies with no history in chip design.

Lower down the market Gable Holdings, a European non-life insurance company, added nearly 13% to 18.75p after first half profits rose 52% to £2m. House broker Panmure Gordon issued a buy note, saying:

We think Gable is well placed to benefit from new product initiatives and any upturn in non-life rates if/when they finally occur. With the shares trading on 2011/12 operating PEs of 5.8 times and 3.6 times respectively, we maintain our buy recommendation and 36p target price. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds