UK stocks end higher on US bank earnings cheer, homebuilders rally

By Shashwat Chauhan

(Reuters) -The UK's main stock indexes closed sharply higher on Tuesday, aided by an upbeat mood on Wall Street after bank earnings and a rally in British homebuilders on hopes that interest rates will peak sooner than anticipated.

The blue-chip FTSE 100 climbed 0.6%, with Ocado surging 19% as the online supermarket and technology group kept its financial guidance for the year after it reported a return to underlying profit in the first half.

The FTSE 350 homebuilders index rallied 3.9% to notch its biggest percentage gain in more than five months as investors bought into the battered sector.

"Gilt yields are down today. We are anticipating a little bit lower inflation," said Shanti Kelemen, chief investment officer at M&G Wealth and &me.

"Home builders are very sensitive to gilt yields and inflation numbers because that influences mortgage rates, which then influences a lot of the new buyers."

Focus will shift to June consumer prices data on Wednesday, with investors looking for fresh cues on the Bank of England's monetary policy tightening plans.

Economists expect inflation to have eased to 8.2% in June versus 8.7% in the previous month, while core inflation - which excludes volatile food, energy, alcohol and tobacco prices - is expected to remain steady at 7.1% on a year-over-year basis.

Meanwhile, Wall Street's S&P 500 rose after some of America's top lenders including Morgan Stanley and Bank of America reported upbeat quarterly earnings. [.N]

"There is some read across from the big growth we're seeing in net interest income. We'll see some of that with the UK banks as well because they have fairly similar business models. Investment banking hasn't been that strong but it also hasn't been a disaster," added Kelemen.

The domestically focused FTSE 250 index climbed 1.2%.

Cybersecurity firm Darktrace jumped 27.8% to the top of the midcap index after it gave an upbeat revenue forecast and said a review by auditor EY would not impact its previous financial statements.

(Reporting by Shashwat Chauhan, Sruthi Shankar, Khushi Singh and Rupali Chaudhary in Bengaluru; Editing by Varun H K, Alexandra Hudson)