Footsie holds on for 21

UK STOCKS are seen climbing this week, with the FT-SE 100 index set to reach its 21st record closing this year on takeover speculation and optimism that interest rates won't rise again. Banks such as Standard Chartered should lead the gains.

Gilts are expected to fall, though, as the minutes of the Bank of England's March Monetary Policy Committee meeting are seen as reigning in the interest rate optimism.

The minutes of the MPC meeting will be released on Wednesday, as will the British Retail Consortium's latest monthly survey of retail sales. The only other economic report expected this week is on producer price inflation in March, due on Tuesday. This is unlikely to affect gilt prices.

"The MPC minutes are the most interesting release this week," said Steve Andrew, a fixed-income analyst at Merrill Lynch, who is advising clients to hold existing gilt positions. "I expect they'll show the committee was evenly split again, and that could just undermine the market's new- found confidence that rates have peaked, leading to a fall in bond prices."

On Thursday, gilts were little changed after the Bank of England left rates unchanged, as expected, fanning talk that corporate borrowing costs won't rise further even though economic growth remains robust. The benchmark 7.25 per cent 10-year UK government bond rose although the yield was unchanged at 5.75 per cent. "We think that rates have peaked," said Christopher Edge, chief investment officer at Pavilion Asset Management.

The FT-SE 100 closed at 6,105.5, just shy of the record close of 6,105.8 on 6 April. The index gained 0.87 per cent in the week and is 18 per cent higher this year.

The FT-SE Bank Index led the gainers after Travelers Group and Citicorp announced their $80bn (pounds 49m) merger on Monday. The move boosted talk that financial companies around the world will merge to cut costs and increase market share. Standard Chartered gained 112 pence since Friday to 972 while Lloyds TSB advanced 52.5p on the week.

"We are due a big merger in Europe [following the US merger]," said Logie Cassells, a fund manager at Capel-Cure Myers Capital Management. "We are ensuring we are up to weight in the sector."

M&G Group and Perpetual gained on Thursday on talk that the fund managers could be the target of takeovers. M&G rose 65p to 1,920 while Perpetual rose 167.5p to 4,302.5, even though Roger Cornick, Perpetual's deputy chairman, said he "categorically denies" the firm is in talks with "any party".

SmithKline Beecham may be active as it prepares to outline its new products at research and development meetings to be held in New York on Tuesday and in London on Thursday.

Premier Farnell, an electronics distributor, is among British companies reporting earnings this week. Willis Corroon Group, an insurance broker, is expected to hold its annual meeting.

Copyright: IOS & Bloomberg