FTSE 100 climbs as U.S.-China trade deal nears; midcaps outshine

By Shashwat Awasthi and Muvija M

(Reuters) - London's main stock index gained on Monday, in step with global peers, as investors took heart from the imminent signing of a Phase 1 U.S.-China trade deal, while hopes of further interest rate cuts by the Bank of England helped the midcaps outperform.

The FTSE 100 <.FTSE> added 0.4%, having earlier touched its highest level so far this year, as trade hopes were complemented by easing Middle East tensions.

The FTSE 250 <.FTMC> outshone the blue-chips and the European benchmark <.STOXX> with a 0.7% rise on its best day since Jan. 2.

A Bank of England policymaker said over the weekend that he would vote for policy easing later this month unless economic data improved significantly.

"One senses the bank doesn't want to get behind the curve and is seeking to get a jump on markets whilst still teeing up the (interest rate) cut," Markets.com analyst Neil Wilson said.

Data showing Britain's economy grew at its weakest annual pace in over seven years in November also fanned hopes of a rate cut.

The midcaps were also boosted by a 7.1% jump in Pennon <PNN.L> after a report https://www.bloomberg.com/news/articles/2020-01-11/kkr-bids-5-2-billion-for-u-k-waste-company-viridor-telegraph that the company had rejected private equity firm KKR's <KKR.N> bid for the UK utility's waste management unit.

Its shares hit an all-time high and helped those of blue-chip peers United Utilities <UU.L>, Severn Trent <SVT.L> and Centrica <CNA.L> gain more than 2% each.

Housebuilders <.FTNMX3720> climbed higher, led by a 2.2% rise in Taylor Wimpey <TW.L>, after upbeat forecast and bullish comments from real estate services provider Savills <SVS.L>.

Savills' shares leapt 7.2% to scale a record high.

Focus now shifts to Washington, where the United States and China will ratify their preliminary trade deal on Wednesday, while the corporate earnings season also kicks off this week.

"The deal is the focal point... With the Phase 1 deal baked in, what markets want to know is how quickly -- if at all -- the two sides can move things forward to Phase 2," Wilson said.

A brighter trade view, along with a rating upgrade from BofA Global Research, helped BAE Systems <BAES.L> climb 3.6% to the top of the main index.

Lending support to the more domestically-exposed FTSE 250 was Spirent Communications <SPT.L>, which surged 14.1% -- its biggest one-day gain in almost a year -- on better-than-expected annual profit guidance.

In the same index, Ferrexpo <FXPO.L> jumped 8.3% after the iron ore pellet producer Ferrexpo cut its net debt year-on-year to $282 million. The number also came in significantly below $356 million estimated by JP Morgan.

Retailers were among steepest small-cap fallers <.FTSC>.

Fashion brand Ted Baker <TED.L> lost 6% after RBC downgraded the stock. Fellow retailer Superdry <SDRY.L>, which issued a profit warning last week, shed 6.5% despite RBC raising its rating.

(Reporting by Shashwat Awasthi and Muvija M in Bengaluru; Editing by Catherine Evans)