Hopes of a cash return buoyed Cable & Wireless on Friday as the FTSE 100 hit its highest level in more than two months.
C&W rose 5.3 per cent to 157.4p after JPMorgan said the group could afford to spend £500m on a share buyback or 20p special dividend.
The stock had fallen more than 8 per cent since C&W’s quarterly results in February, when it failed to deliver an expected upgrade of earnings guidance.
JPMorgan suggested C&W may have deliberately downplayed guidance because of its controversial private equity-style bonus plan, which is due to pay out in May based on the average share price during March.
Management may “find a more receptive audience” at the May results, analyst Jerry Dellis said. “Now is the time we believe C&W starts to focus attention on a likely trebling of effective free cashflow in the next three years.”
The wider market pushed higher as strong US results and economic data eclipsed the sharpest fall in UK GDP for 30 years.
An increased risk appetite lifted the FTSE 100 by 3.4 per cent, or 137.76 points, to 4,155.99. For the week the index was up 1.5 per cent.
Miners led the risers after Cazenove upgraded the sector to “overweight”.
“We believe economic stabilisation evidenced in an array of global lead indicators and the remarkably robust Chinese economy suggest that commodity pricing has probably seen its lows,” said the broker. “While we do not believe the Western economic recovery will be anything more than anaemic as and when it starts, there is likely to be some positive restocking effect in the near future.”
Kazakhmys, which Cazenove upgraded to “outperform”, climbed 8.2 per cent to 515½p. Its other favoured pick was Xstrata, ahead 14.4 per cent to 600p.
Lloyds Banking Group, up 4.2 per cent to 100p, was top pick in a UBS note looking at the “green shoots in UK banking”.
Analyst Alastair Ryan said Northern Rock was likely to resume lending in volume within the coming weeks, which should help improve credit provision and stabilise house prices.
“The Rock was the greatest single contributor to the reduction in mortgage availability in 2008 and we believe its return will cement the improved situation through the balance of 2009,” he said.
Among the property stocks, Liberty International rose 3.5 per cent to 451p amid talk that it was close to finalising a share placing to raise about £500m.
BAE Systems rose 4.6 per cent to 350¾p. “We may be about to see contract news-flow from the US and Europe which could stimulate interest in the shares,” said UBS, which added the defence contractor to its ”most preferred” list.
Bunzl was up 7.9 per cent to 531p after Pactiv, one of its biggest US customers, raised earnings guidance to reflect lower materials costs.
Meanwhile, Cazenove upgraded Bunzl to “outperform” on hopes it can make some bargain acquisitions as markets unfreeze.
Hotel and pub owner Whitbread, which reports annual results on Tuesday, gained 5.9 per cent to 919½p after being added to Goldman Sachs’s “conviction buy” list. The shares could rerate towards a £10.70 target on any signs that consumer spending is stabilising, Goldman said.
Autonomy was the sharpest blue-chip faller, down 2.7 per cent to £13.41, after Microsoft gave a cautious outlook for business licence sales.
Smith & Nephew lost 2 per cent to 461½p ahead of its first-quarter results on Thursday. Overnight, US peer Zimmer posted weaker than expected sales as American pricing turned negative.
Among the mid-caps, Taylor Wimpey drifted 0.5 per cent to 46½p on talk it was near to finalising a rights issue.
Traders heard speculation that the housebuilder could issue stock at about 25p to raise about £100m – significantly less than the £350m its management has previously targeted.
Sports Direct lost 1.4 per cent to 69p after Investec set a 40p price target. “Sports Direct may have overplayed its hand in trying to increase pressure on competitors, leaving it heavily over-stocked and at risk of further margin compression in 2010,” the broker said.