LONDON MARKETS: FTSE 100 Logs Best Week Of 2017 As Pound 'falls Out Of Bed' On Prospect Of Snap Election

Sterling set for worst week since flash crash a year ago

U.K. stocks headed higher on Friday, boosted by a weaker pound, which slid further on growing speculation that the government will call a snap election.

The FTSE 100 index rose 0.2% to close at 7,522.87, rising for a seventh session in the past eight. For the week, the London benchmark scored a 2% gain, its biggest weekly advance since early December last year.

Meanwhile, the pound slumped to $1.3058, down from $1.3118 late Thursday in New York. Sterling is now set for a 2.6% weekly tumble, its biggest since the week ending Oct. 7, 2016, when the currency lost 4.1% against the dollar after a flash crash.

Against the euro, the pound fell to EUR1.1130, down from EUR1.1202 on Thursday.

"The British pound has fallen out of bed since the end of the Conservative party conference. Luckily for U.K. investors, the pound's negative correlation with returns on blue-chip stocks is going strong," said Jasper Lawler, head of research at London Capital Group, in a note.

He noted that the sterling slump isn't just a reflection of dollar strength, as the fall against the euro indicates the issues are more local.

"MPs' confidence in Theresa May is at a low point. But having made it through the poor election result, it would seem daft for her to quit, in effect because she had a cold. If May can hang on, the pound is due a correction of recent losses, at least against the euro," he added.

The pound's tumble comes after U.K. Prime Minister Theresa May's "disastrous" speech (http://www.marketwatch.com/story/uk-leader-theresa-mays-slogan-literally-fell-apart-during-her-disastrous-speech-2017-10-04)at the Tory party conference on Wednesday and continued gridlock with Brussels over Brexit. The combination has led to growing speculation the U.K. leader will resign and call an early, or "snap," election. The Brits headed to the polls as recently as June, when May's gamble in calling a snap vote failed (http://www.marketwatch.com/story/worst-possible-outcome-analysts-react-to-uk-early-election-results-2017-06-08) and her party lost its parliamentary majority

Paddy Power has significantly shortened its odds on an imminent exit for the British prime minister after the speech this week. The Irish bookmaker is offering odds of 2/1, or 33% probability, on May quitting this month, down from 5/1, or 17% probability, on Thursday. For its part, Ladbrokes puts the chance of a departure by the end of this year at 2/1.

Paddy Power said it sees a 31% chance of a general election in 2018, four years earlier than what's currently planned.

The prime minister on Friday dismissed the idea that she might be ousted, saying she has the support of her cabinet.

Read:Sterling has a long way to fall, as snap election risk mounts in the U.K (http://www.marketwatch.com/story/sterling-has-a-long-way-to-fall-as-snap-election-risk-mounts-in-the-uk-2017-10-05).

(http://www.marketwatch.com/story/sterling-has-a-long-way-to-fall-as-snap-election-risk-mounts-in-the-uk-2017-10-05)

Stock movers: Shares of EasyJet PLC (EZJ.LN) fell 1.6% after the discount airline said it expects profit for fiscal 2017 to be at the upper end (http://www.marketwatch.com/story/easyjet-sees-profit-at-upper-end-despite-fx-hit-2017-10-06) of its guidance range, but also highlighted pressures facing the sector.

CRH PLC fell 1.3% after U.S. cement maker Ash Grove Cement Co. (ASHG) on Thursday said it received a takeover proposal valued at up to $3.8 billion, topping the $3.5 billion offer made by CRH (http://www.marketwatch.com/story/crh-agrees-to-buy-ash-grove-cement-in-35-billion-deal-2017-09-21) in September.

(END) Dow Jones Newswires

October 06, 2017 12:22 ET (16:22 GMT)