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FTSE 100 recovers on IMF reports

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UK stocks clawed back early losses this afternoon after it was reported that the International Monetary Fund (IMF) plans to expand its lending capacity by another US$500 billion to help Europe keep its debt problems from spiralling out of control.

The blue chip FTSE 100 index stood at 5,695 in early afternoon, up two points from Tuesday’s close.

According to media reports, IMF hopes to receive contributions from emerging economies including China, Russia and Brazil, while the EU has already pledged to provide €200 billion.

Some analysts, however, urged caution as there is no certainty that the IMF will actually manage to turn this plan into reality.

“There is no commitment of more monies for the IMF, and the US and UK have already come out and said they won’t pay in any extra to the fund to prop up the euro zone, so Lagarde has a tough round of negotiations to try and reach her US$1 trillion target,” said analyst at forex.com Kathleen Brooks.

The result of today’s bond sale by Portugal provided more support to European stock markets. The debt ridden nation, which received a bailout package from the EU last year, sold €2.5 billion worth of short term bonds.

Yields on 11 month notes reached 4.986, down from 5.902 at the previous auction in April, a sign that confidence in euro zone debt has improved.

Gains in stock markets around the globe were curbed by a bearish report from the World Bank, which slashed its global economic growth forecasts by 1.1 percent to 2.5 percent, while projecting a 0.3 percent contraction in the euro zone.

Essar Energy (LON:ESSR, up 11pct at 141p) led the way, recovering from yesterday’s 26 percent fall that came after an Indial court ruled the group was not eligible for a £1.2 billion tax deferral.

Hedge fund manager Man Group (LON:EMG, up 6.1pct at 142.4p) also did well as investors welcomed its plans to save a further US$75 million this year.

Oil and gas firm Tullow Oil (LON:TLW, down 5.2pct at 1,380p) was the worst performing blue chip in afternoon trade after missing its 2011 production guidance.

Peer Cairn Energy (LON:CNE, down 1.3pct at 285.8p) also emerged among the heaviest fallers in the top flight as it emerged that the oil major plans to give former chief executive and now chairman Bill Gammell a £4.9 billion bonus, a move that could be frowned upon by shareholders.

Other notable fallers included turbine and engine manufacturer Rolls-Royce (LON:RR., down 1.9pct at 748.5p) after JP Cazenove downgraded its recommendation on the stock from ‘overweight’ to ‘neutral’.

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