London close: Stocks higher despite warnings a bubble is forming

London stocks tracked fresh gains on Wall Street, ending the session higher, with some well-received earnings from the likes of Rolls-Royce and BP boosting sentiment further, even as a former head of the US central bank warned of a bubble in bond markets.

A better-than-expected reading on the UK manufacturing sector was also a factor.

By the closing bell, the top-flight index was up by 0.70% or 51.66 points to 7,423.66, while the pound was essentially flat against the dollar at 1.3215 as traders bided their time ahead of the Bank of England's policy announcement scheduled for the following Thursday.

In parallel, the FTSE 250 rose 0.42% or 82.46 points to 19,863.60.

Speaking to Bloomberg, ex-Federal Reserve chief Alan Greenspan said: "When [real long-term interest rates] move higher they are likely to move reasonably fast. We are experiencing a bubble, not in stock prices but in bond prices. This is not discounted in the marketplace."

Stocks would be particularly hard hit when that bubble popped, he said.

Be that as it may, at the start of trading on Wall Street on Tuesday, the Dow Jones Industrials hit a fresh record high at 21,990.96.

"The major US indices having been registering record highs recently, and even though we may see the odd pullback, the bullish sentiment won’t be shaken off lightly," said David Madden, market analyst at CMC Markets UK.

On the economic front in the UK, Markit's manufacturing purchasing managers' index for July rebounded to 55.1 from 54.2 a month before, ahead of consensus estimate of 54.5 but still below its average of the first half of the year of 55.3.

This was the first rise in the UK manufacturing PMI in three months and only partly reversed its fall in June as a stronger flow of new work combined with higher levels of production and a rise in job creation.

Corporate news also helped to underpin the positive mood, with Rolls-Royce up sharply as it said first-half underlying profit rose nearly 150% as revenue edged up and the aerospace and defence giant reiterated its outlook for the full year.

Meanwhile, oil giant BP gushed higher as its second-quarter net income beat analysts’ expectations, while Morrisons advanced after announcing a new supply deal with McColl’s.

Insurer Direct Line pushed up as it posted a 9.5% jump in first-half operating profit as gross written premiums rose 5% and it bumped its dividend up by 39%. This saw sector peer Admiral lifted on its coattails too.

Testing services company Intertek surged after reporting a rise in first-half profit thanks to a strong performance from its non-oil related operations.

Centrica rose as it announced that British Gas will hike its electricity prices for households by a whopping 12.5% from mid-September, and said half-year adjusted earnings fell 11%.

Housebuilder Taylor Wimpey built up solid gains after reporting 24% drop in first-half pre-tax profit on Tuesday as it put aside £130m for homebuyers that were affected by a leasehold scandal, as the numbers were better than expected.

Shares in Greggs were looking tasty after it reporting a jump in sales and profits for the first half, while Man Group was higher as it said first-half funds under management and profit rose as net inflows and performance fees grew.

Mid-cap lender CYBG notched up impressive gains after a solid third-quarter update.

British American Tobacco reversed early losses after the Serious Fraud Office opened a formal investigation into reports of historic bribery by the company in Africa to trade higher.

On the downside, AA plunged after dismissing its executive chairman for "gross misconduct", while Carillion took a hit as Investec resumed coverage of the stock at ‘sell’.

Miner Fresnillo was down despite solid first half results, though analysts at Shore Capital said its dividend was "relatively paltry". A stronger to the US dollar on Tuesday likely also played a hand.

Market Movers

FTSE 100 (UKX) 7,423.66 0.70%
FTSE 250 (MCX) 19,863.60 0.42%
techMARK (TASX) 3,463.29 -0.02%

FTSE 100 - Risers

Rolls-Royce Holdings (RR.) 979.00p 10.25%
Intertek Group (ITRK) 4,695.00p 9.16%
Direct Line Insurance Group (DLG) 395.00p 5.45%
International Consolidated Airlines Group SA (CDI) (IAG) 597.50p 3.37%
Admiral Group (ADM) 2,131.00p 3.05%
DCC (DCC) 6,840.00p 2.85%
Imperial Brands (IMB) 3,203.00p 2.66%
British American Tobacco (BATS) 4,832.00p 2.51%
Smurfit Kappa Group (SKG) 2,290.00p 2.49%
BP (BP.) 456.45p 2.39%

FTSE 100 - Fallers

Fresnillo (FRES) 1,496.00p -2.60%
Mediclinic International (MDC) 725.00p -2.03%
AstraZeneca (AZN) 4,490.00p -1.73%
Johnson Matthey (JMAT) 2,764.00p -1.64%
Anglo American (AAL) 1,236.00p -1.32%
BHP Billiton (BLT) 1,362.50p -1.12%
ITV (ITV) 171.50p -0.87%
Hargreaves Lansdown (HL.) 1,371.00p -0.65%
Rio Tinto (RIO) 3,502.00p -0.51%
United Utilities Group (UU.) 893.00p -0.50%

FTSE 250 - Risers

CYBG (CYBG) 292.00p 9.28%
Senior (SNR) 264.10p 6.32%
FDM Group (Holdings) (FDM) 970.00p 5.44%
Man Group (EMG) 168.60p 5.37%
Sophos Group (SOPH) 473.10p 4.78%
BBA Aviation (BBA) 311.30p 3.87%
Evraz (EVR) 246.50p 3.57%
Ascential (ASCL) 371.10p 3.37%
Inchcape (INCH) 828.00p 3.11%
Hill & Smith Holdings (HILS) 1,380.00p 2.99%

FTSE 250 - Fallers

AA (AA.) 210.00p -14.04%
Carillion (CLLN) 53.25p -6.25%
esure Group (ESUR) 287.80p -2.90%
Fidessa Group (FDSA) 2,200.00p -2.83%
Greencore Group (GNC) 217.50p -2.82%
Redefine International (RDI) 37.50p -2.42%
Kaz Minerals (KAZ) 703.00p -2.09%
Spire Healthcare Group (SPI) 338.00p -2.03%
Restaurant Group (RTN) 327.70p -2.00%
Fisher (James) & Sons (FSJ) 1,533.00p -1.97%