Burberry in style as FTSE rallies strongly

Luxury goods retailer Burberry was prominent on the FTSE 100 thanks to a trading update from a smaller rival, encouraging broker comment and the lingering whiff of takeover speculation.

While JPMorgan retained its "neutral" stance on the London-based maker of clothing and fashion accessories, it raised its target price to £15.60 from £14.70 reflecting the boost to European sales from a weaker euro.

Goldman Sachs, meanwhile, published a list of 45 stocks it believed had a more than 30 per cent chance of being involved in merger and acquisition activity in the next 12 months.

Burberry, which is also on Goldman's "conviction buy" list, was among these M&A stocks that were "supported by a combination of low financing costs, strong balance sheets and increasing corporate confidence in the European macro outlook". Burberry shares closed up almost 3 per cent to £17.92.

Takeover speculation has had markets abuzz this week - including Shell's £47bn bid for BG Group and rumours of interest in Sky TV - and traders said interest for Burberry would most likely come from the US private equity sector. Ahead of its full-year results on Wednesday, Burberry shares gained 2.8 per cent to £17.92.

Rival Mulberry, famed for its handbags and leather accessories, said it expected full-year profit ahead of market expectations thanks to stronger retail demand for luxury items and a cut in costs. After early gains, profit-taking set in and shares in the small-cap stock, which have gained about 30 per cent since October's earnings warning, fell 0.7 per cent to 869p.

Other apparel retailers were boosted, with Sports Direct on the FTSE 100 climbing 2.5 per cent to 643p, while mid-cap peer JD Sports rose 4 per cent to 490p.

The FTSE 100 ended 78 points, or 1.1 per cent higher at 7,015.36, with Aberdeen Asset Management claiming top spot - up 4.2 per cent at 484.9p.

Housebuilders were also among the winners after Societe Generale added a couple of stocks from the sector to its influential series of Equity Quant indices. Persimmon gained 3.2 per cent to £17.33 after it was included in the SocGen Global Quality Income index, while Berkeley Group climbed 1.8 per cent to £27.10 after it was introduced into the European Quality Income index.

Research from Hardman & Co suggested the sector might provide a hedge against UK election uncertainty, given "housebuilding is front and centre on all political agendas". Analyst Tony Williams said in spite of a combined 9.6 per cent gain for the group in the first quarter, share prices remained 17 per cent below their 2007 peaks and 5 per cent off their 52-week highs.

Barratt Developments gained 2 per cent to 541p, while Taylor Wimpey added 1.8 per cent to 161.2p and Bovis Homes climbed 3.1 per cent to 984p.

Aggreko, the temporary power supplier, was the FTSE 100's biggest faller, down 3.3 per cent at £15.43 on concerns over its exposure to tensions in Yemen.

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