Dealmaking lifts mood as FTSE rallies

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Dealmaking activity gave London traders some welcome distraction from worries about the travails of the eurozone as Cypriot banks reopened for the first time since the island’s financial bailout.

Johnson Matthey, the speciality chemicals maker and precious metals refiner, rose 2.2 per cent to £23 after it bought Swedish catalyst specialist Formox for £107m in cash.

The diesel engine catalytic converter market has become more important to Johnson Matthey, which has become the largest supplier of the emissions-reducing devices by volumes. The deal will help the company apply process catalyst expertise to new markets.

In a note on chemical stocks written earlier this month, Martin Dunwoodie at Deutsche Bank said: “We have a buy [rating] on Johnson Matthey, with a good long-term structural growth story and step-up in growth [looking] under-appreciated.”

Evraz, the Russian steelmaker, gained 1 per cent to 222.05p as traders got their first chance to react to news of the £320m sale of its 85 per cent stake in South African metals unit Evraz Highfield.

At the top of the benchmark index stood sugar and sweetener maker Tate & Lyle after it reaffirmed its target for the full financial year, forecasting “modest progress”. Its stock rose 3 per cent to 849.75p.

National Grid was 1.9 per cent higher at 765.25p after the group pledged to increase its dividend “at least in line with inflation” and “for the foreseeable future” without jeapordising its credit rating. The electricity distributor also said it expected annual earnings to be “modestly ahead” of forecasts.

Jonathan Jackson, head of equities, Killik & Co, said: “Real dividend growth is achievable [for National Grid] from the current level and, if higher returns are earned, growth in excess of inflation is likely. The announcement will clearly allay the concerns of some market commentators that the group would cut its dividend, while also removing any lingering fears over the prospect of a rights issue.”

Financial stocks remained little troubled by the news that UK banks will be required to raise £25bn in fresh capital, which was viewed firmly within the context of the sector’s strong recovery over 2012, when it led the FTSE 100. Barclays was up 1.9 per cent at 291.2p.

Overall, London’s benchmark index was 24 points higher at 6,411.74, a rise of 0.4 per cent, with defensive stocks alongside financials in providing the best support at sector level.

Wider sentiment on global markets was cautious.Traders said current valuations faced a test from next week’s US non-farm payrolls number and the insight it offers of the strength of the US recovery.

They were also tracking events in Cyprus. Queues outside the banks there remained calm as savers were offered a narrow window to withdraw funds ahead of the Easter weekend. It was their first chance to do so since the country’s bailout resurrected fears about the dangers posed by the eurozone crisis.

Mike McCudden, head of derivatives at Interactive Investor, said that: “Despite Cyprus embarking on capital controls to stave off a run on its banks and the threat of contagion through the eurozone investors are still looking for any excuse to buy into this market.

“As we move towards the long weekend investors should not be complacent. With the eurozone being lost in the woods and rumblings of concern over next week’s big US jobs number, investors will no doubt move to a risk off stance.”

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