LONDON MARKETS: U.K. Stocks Propelled To 6-week High As RBS Rises, Pound Falls

By Sara Sjolin, MarketWatch Features Dow Jones Newswires

Home builders slide on report of government 'Help to Buy' review

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U.K. stocks on Friday closed at their highest in six weeks, with Royal Bank of Scotland Group PLC climbing after a well-received earnings report, while the pound dropped against the dollar after a stronger-than-expected U.S. jobs report for July.

The FTSE 100 index rose 0.5% to end at 7,511.71, the best finish since June 19, according to data from FactSet. All but the utilities and health-care sectors marked gains. For the week, the benchmark sprang up 2%, the biggest weekly rise since December.

RBS back in black: Shares of Royal Bank of Scotland Group PLC (RBS.LN) (RBS.LN) notched a 2% gain, although they closed off session highs. The advance came after the lender posted its first half-year profit in three years (http://www.marketwatch.com/story/rbs-swings-to-profit-as-one-off-effect-fades-2017-08-04), despite a $5.5 billion U.S. settlement fine. The bank swung to a profit of GBP939 million ($1.23 billion).

"A looming fine for mis-selling mortgage-backed securities in the U.S. casts a long shadow, but the omens are looking a lot more promising for a return to private ownership," said Neil Wilson, senior market analyst at ETX Capital, in a note.

"Based on these figures, the return to genuine sustained profitability in 2018 appears a lot more realistic," he said.

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RBS was bailed out by the U.K. government during the financial crisis in 2008, and it is still majority owned by the state. In the year-ago period, it paid the U.K. government more than GBP1 billion for the right to pay dividends.

Pound a leg down: U.K. stocks were driven to intraday highs in afternoon trade as the pound was shoved as low as $1.3033 against the dollar . The greenback bounced up against major rivals after data showed the U.S. economy added 209,000 jobs in July (http://www.marketwatch.com/story/us-gains-209000-jobs-in-july-unemployment-retouches-16-year-low-of-43-2017-08-04), while wage growth met expectations with a 0.3% rate.

"Sustained labor market strength will likely mean that the Federal Reserve remains on track to raise interest rates for a third time this year and announce a plan to start its balance sheet reduction plan, despite a recent ebb in inflation pressures," said Kully Samra, U.K. managing director at Charles Schwab, in a note.

The FTSE 100 tends to benefit from a weaker pound, as about 75% of all sales for companies on the benchmark are made overseas. The pound lost roughly 0.8% against the greenback this week.

The prospect of another Fed rate hike helped pushed U.K. bank shares higher, as many lenders have operations in the U.S. and higher rates can help bolster net interest margin. Shares of HSBC PLC (HSBA.LN) (HSBA.LN) picked up 1%, Barclays PLC (BCS) (BCS) rose 0.9% and Lloyds Banking Group PLC (LLOY.LN) (LLOY.LN) gained 0.5%. Standard Chartered PLC (STAN.LN) moved up 1.5%.

While the Fed may be poised to raise rates this year, the Bank of England on Thursday warned of slower British economic growth and wage pressures, partly due to a pending Brexit. Sterling was driven lower Thursday to $1.3138.

See:Dovish or hawkish? BOE leaves traders confused after 'Super Thursday' (http://www.marketwatch.com/story/dovish-or-hawkish-bank-of-england-leaves-traders-confused-after-super-thursday-2017-08-03)

Construction in focus: Home builders were among major decliners after Property Week said the government has initiated a review of the Help to Buy housing scheme (http://www.propertyweek.com/news/help-to-buy-could-end-early-under-government-review/5090767.article). The real estate publication said the program, which provides financial aid to first-time home buyers, could be wound down or replaced before its planned end in April 2021.

"This could lead to the scheme being cancelled, or no change at all, but at the very least it does signal that the government's whole hearted support for the scheme has eroded," analysts at Liberum said in a note.

Shares of Barratt Developments PLC (BDEV.LN) dropped 4.7%, Persimmon PLC (PSN.LN) lost 4%, and Taylor Wimpey PLC (TW.LN) gave up 3.7%.

"The scheme is important to the industry as 38% of private completions make use of the scheme. Removal of the scheme would impact margins and sales rates," the analysts said.

Stock movers: Merlin Entertainments PLC (MERL.LN) added 5.8%. The theme park and resort operator said half-year revenue climbed (http://www.marketwatch.com/story/merlin-profit-flat-as-revenue-visitors-rise-2017-08-04) and that its 2017 profit outlook was in line with expectations.

Shares of Pearson PLC (PSON.LN) turned lower, falling 2%. Shares had risen earlier after the educational publisher said its pretax loss narrowed (http://www.marketwatch.com/story/pearson-to-cut-3000-jobs-as-loss-narrows-2017-08-04) in the first half of the year and that it plans to cut around 3,000 jobs.

Hargreaves Lansdown PLC (HL.LN) fell 2.6% after saying it won't pay a special dividend this year (http://www.marketwatch.com/story/hargreaves-lansdown-wont-pay-special-dividend-2017-08-04). The financial services firm said it won't have sufficient regulatory capital surplus if it pays out the extra dividend.

(END) Dow Jones Newswires

August 04, 2017 12:28 ET (16:28 GMT)