* Banks rise, tracking rally in U.S. peers overnight
* Miners track higher raw material prices
By Dominic Lau
LONDON, May 5 (Reuters) - Britain's top share index surged
2.9 percent by midday on Tuesday, hitting a near four-month
high, led by financials and commodity issues as investors bet
banks may need to raise modest capital after U.S. stress tests.
By 1024 GMT, the FTSE 100 <> was up 121.80 points at
4,365.02, catching up with gains from its continental European
peers the previous session when it was closed for a public
holiday.
The UK index was still down 1.7 percent for the year after
rallying 26 percent from a six-year low hit on March 9.
"There seems to be an incredible amount of optimism around
at the moment. I am surprised that we have bounced back nearly a
thousand-point since the low," said David Jones, chief market
strategist at IG Markets.
"It's difficult to say what is going to change sentiment.
Maybe there will be some surprises in the stress tests results
that will take some of the positive sentiment away."
Jones said investors were happy to buy even though some of
the stocks had been overbought.
"Where prices should be and where they actually are is two
quite different things and for now, sentiment is still very
positive. It wouldn't surprise me if valuations are high, they
could get higher because buyers just push it up."
Banks were the best performing sector, lifted by gains among
U.S. peers overnight, as investors bet banks' capital shortfalls
may be manageable. U.S. housing data also fuelled hopes the
recession was easing.
Standard Chartered <STAN.L> strengthened 10.3 percent. The
Asia-focused bank reported record first-quarter income and
profit, brushing aside a global financial crisis. []
Barclays <BARC.L>, Royal Bank of Scotland <RBS.L>, HSBC
<HSBA.L> and Lloyds Banking Group <LLOY.L> advanced between 7.3
and 13.2 percent.
"Justifiable though the market recovery is, there are some
huge bumps ahead. Thursday may be one of those big bumps, with
the devil in the details of what U.S. banks require," said
Howard Wheeldon, senior strategist at BGC Partners.
"Between now and then, the market may do better to sit on
its hands."
A source familiar with official talks said U.S. regulators
had deemed that about 10 of the 19 U.S. banks being stress
tested would need to raise more capital. The banks will be
briefed on Tuesday on the final results which will be published
on Thursday. []
Within the financial sector, insurer Aviva <AV.L> soared 6.3
percent, while its peers Prudential <PRU.L>, Standard Life
<SL.L> and Friends Provident <FP.L> rose 3.0 to 7.8 percent.
Xstrata <XTA.L> soared 8.5 percent after the miner posted a
7.7 percent rise in first-quarter coal production, its most
profitable commodity, but output of many other products declined
amid weak demand and low prices. []
Other miners were also in demand, lifted by firmer metal
prices. BHP Billiton <BLT.L>, Rio Tinto <RIO.L>, Kazakhmys
<KAZ.L>, Vedanta Resources <VED.L>, Anglo American <AAL.L> and
Antofagasta <ANTO.L> rose between 3.3 and 14.3 percent.
Societe Generale said it was overweight on basic resources
"given sound value and good correlation with (bottoming)
commodity prices."
Oil producers were higher as crude prices <CLc1> traded
above $54 a barrel. BP <BP.L>, Royal Dutch Shell <RDSa.L>, BG
Group <BG.L> and Tullow Oil <TLW.L> added between 1.3 and 2.2
percent.
(Editing by Hans Peters)
