LONDON MARKETS: FTSE 100 Ends Higher As Pound Slides After EU Warns Of 'difficult' Second Brexit Phase

Banks decline as worries over U.S. tax reform crop up again

U.K. stocks erased earlier losses to close higher on Friday, boosted by a slide in the pound after EU leaders agreed to move on to the second phase of Brexit talks, but warned the coming negotiations will be difficult.

The market had opened in negative territory, keying off Thursday's losses in the U.S. where worries about progress for tax cuts zapped the investment mood.

What markets are doing: The FTSE 100 index rose 0.6% to end at 7,490.57, propelling the benchmark to a 1.3% weekly gain. The index has risen 4.9% year-to-date.

The pound tumbled to $1.3317, down from $1.3430 late Thursday in New York. Against the euro, the pound traded hands at EUR1.1308 compared with $1.1403 on Thursday. A weaker sterling tends to give the FTSE 100 a boost as about 75% of revenues for the index's components is made overseas.

The 10-year gilt yield fell 2 basis points to 1.15%, according to Tradeweb. Yields fall when prices rise.

What's moving markets: The pound was slammed after EU leaders at a summit in Brussels determined that sufficient progress in Brexit negotiations has been made in recent months to move talks on to trade and the transition period.

While this should be seen as a positive thing for the U.K. and the pound, analysts said this was a case of "buy the rumor, sell the fact" as well as European Commission president Jean-Claude Juncker warning that the next round of Brexit talks will be "significantly harder" than the first round.

(https://twitter.com/EU_Commission/status/941585299880243200)

German Chancellor Angela Merkel also chimed in, saying the "most difficult phase is ahead of us."

"The formal shift from phase 1 to phase 2 of negotiations between the UK and EU only intensified the pound's Brexit migraine this Friday," said Connor Campbell, financial analyst at Spreadex, in a note.

"What we just went through was meant to be the easy part. Now the U.K. heads into the New Year facing an 'even tougher' (Angela Merkel) and 'significantly harder' (Jean-Claude Juncker) set of Brexit talks, as the country tries to work out what its future trade relationship will look like with the EU while desperately seeking avoid a 'no deal' scenario by the 29 March 2019 divorce deadline," he added.

Also on investors' minds were worries surrounding Republican-led efforts in Washington to cut taxes that cropped up again on Thursday. Florida Sen. Marco Rubio told Senate leaders he'll vote against the tax bill unless it includes a larger expansion of the child tax credit. Several Republican senators have now expressed doubts about the tax overhaul ahead of an expected vote on the final bill next week, according to The Wall Street Journal. (https://www.wsj.com/articles/house-senate-republicans-reach-deal-on-final-tax-bill-1513185360)

Expectations for tax cuts and an overhaul in U.S. tax polices have at times boosted bank stocks world-wide over the last year.

Stock movers: Bank shares ended in the red. HSBC Holdings PLC (HSBA.LN) (HSBA.LN) fell 0.7% and Barclays PLC (BCS) (BCS) fell 0.2%. Royal Bank of Scotland Group PLC (RBS.LN) (RBS.LN) closed 0.6% lower.

Persimmon PLC shares (PSN.LN) fell 1% after the home builder said Chairman Nicholas Wrigley will resign from the board (http://www.marketwatch.com/story/persimmon-chairman-nicholas-wrigley-to-resign-2017-12-15-24852834). He will remain in his position while the company looks for his successor.

BT Group PLC (BT.A.LN) ended up 1.4% and Sky PLC (SKY.LN) gained 2.8%, with BT Group saying it's reached an agreement with Sky to provide packages of their TV channels on each other's platforms. (http://www.marketwatch.com/story/bt-sky-agree-deal-for-cross-supply-of-tv-packages-2017-12-15)

(END) Dow Jones Newswires

December 15, 2017 12:11 ET (17:11 GMT)