Blue-chips bounce back on bargain hunting

The FTSE 100 rose in early trading on Monday as investors sought to profit from the recent sell-off.

The blue-chip index was up 1.8% to 5259.29 at 0926 amid a broad-based recovery following last week’s sell-off.

Resource and banking stocks were at the forefront of the rally following a note from Deutscche Bank that predicted the FTSE100 will rally 24% to 6400 by the end of 2012.

Royal Bank of Scotland Group was top of the leader-board in early trading, rising 6.1% to 19.89p, while Lloyds Banking group rose 5.3% to 24.41p, and Barclays jumped 5%. Resource stocks also rose, led by Vedanta, which was up 4.3% to 968p.

An increased appetite for riskier assets was also helped by positive reports about the Eurozone criss over the weekend. German Finance Minister Wolfgang Schaeuble urged fast-track treaty changes to tighten budget discipline among euro-area member states. Schaeuble said in an interview with ARD television in Berlin yesterday that treaty change is necessary to empower the European Commission to veto member-state budgets.

Welt am Sonntag reported German Chancellor Angela Merkel and French President Nicolas Sarkozy are discussing a fast-track stability agreement. The newspaper did not say where it got the information. The euro area’s two biggest economies plan a coalition of member states that would commit to greater fiscal discipline without waiting to change European Union treaties, according to the newspaper.

Separately, La Stampa reported that the International Monetary Fund is preparing a €600m ($800bn) loan for Italy in case the debt crisis worsens, although the IMF denied on Monday that any talks were taking place.

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