Defence firms boosted after Clinton spending cuts warning

Stern words from US secretary of state Hilary Clinton about defence cuts and a positive analyst note from Goldman Sachs pushed defence firms to the top of the FTSE 100.

Goldman Sachs analysts upgraded Rolls-Royce and Cobham to ‘buy’ from ‘neutral’  and said that while defence cuts were expected ‘it appears that cuts to the 2011 defence budgets in France, Germany and the UK will be at the lower end of expectations’. Yesterday Hilary Clinton, US secretary of state, warned the UK that defence spending cuts could damage Nato.

Cobham was up 2% at £2.44, BAE was up 1.5% at £3.72 and Rolls-Royce was 1.3% higher at £6.36.   

Banks were recovering after their shares were hit by investor fears of rights issues following in the footsteps of Standard Chartered.

Royal Bank of Scotland was up 1.96% at 46p, while Lloyds shares were up 2.2% at 72p

The biggest fallers included Old Mutual. The Financial Times reported that HSBC could walk away from an $8 billion bid for Ned Bank which is majority owned by Old Mutual. The life company’s shares were down nearly 4% at £139. RSA Insurance shares were also down 2.5% at £1.32.

No significant economic data was expected in the UK today but investors were waiting for two events in the US. The first was US Federal Reserve Chairman Ben Bernanke’s speech due this afternoon which could provide clues as to the form any quantitative easing (when central banks pumps cash into the economic system by buying back their debts) might take.

The other item of interest for investors coming out of the US is a report identifying ‘currency manipulators’ amongst its major trading partners. China is expected to be under the spotlight.

Capital Economics’ US economists said that an increase in the trade deficit with China ‘suggests calls for action against China are only likely to get louder’.

Gold was selling at $1,379 per ounce and Oil stood at $84 per barrel.

The pound was worth $1.60 against the dollar and €1.14 against the Euro