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An employee counts Russian rouble banknotes at a private company's office in Krasnoyarsk
An employee counts Russian rouble banknotes at a private company's office in Krasnoyarsk. A volatile week began with a plunge in the Russian rouble sending shockwaves around the financial world and ended with investors reassured by the US Federal Reserve. Photograph: Ilya Naymushin/REUTERS
An employee counts Russian rouble banknotes at a private company's office in Krasnoyarsk. A volatile week began with a plunge in the Russian rouble sending shockwaves around the financial world and ended with investors reassured by the US Federal Reserve. Photograph: Ilya Naymushin/REUTERS

FTSE 100 closes turbulent week higher

This article is more than 9 years old
Global markets finally began their much anticipated pre-Christmas rally, while oil steadied and the rouble staged a recovery

The FTSE 100 recorded its biggest weekly rise for three years, adding £62bn to the value of Britain’s leading companies, as global markets finally began their much anticipated pre-Christmas rally.

A volatile week began with a plunge in the Russian rouble sending shockwaves around the financial world and ended with investors reassured by the US Federal Reserve, which said it would be “patient” about raising interest rates. Positive comments about the outlook for the Japanese economy from the country’s central bank also helped support the markets.

The FTSE 100 closed at 6545.27 on Friday, up 79.27 points on the day and 244.64 points or 3.88% on the week. After the previous week’s 6.6% decline, this was the best performance since December 2011.

European shares fell back on Friday, however, on fears about the banking system after Standard & Poor’s cut its ratings on a number of Italian banks late on Thursday, while Wall Street was unchanged as London closed, after two days of rises.

Oil steadied after its recent plunge, with Brent crude up more than 2% at $60.5 a barrel. Analysts said the sliding oil price, which led to concerns about a slowdown in demand in the global economy, could also prompt an increase in consumer spending as the cost of petrol falls. Roland Kaloyan at Societe Generale said: “The drop in oil price has recently put pressure on the equity market. However [there is] historical evidence that a fall in oil price is a positive for equities, with a clear acceleration in performance after six months. “

The rouble also staged a recovery after its slump early in the week as the Russian central bank tried and failed to stem the decline with an overnight hike in interest rates from 10.5% to 17%. Investors have piled out of the currency on fears about the country’s economy in the wake of the falling oil price and the sanctions imposed by the west over Ukraine.

But measures subsequently unveiled by the central bank to support the country’s financial system were more successful at supporting the rouble. On Friday it rose nearly 5% to 59 to the dollar after hitting a low of 80 earlier in the week.

But economists warned that the central bank’s actions could still lead to a full blown banking crisis. Evgeny Gavrilenkov, chief economist at Russia’s largest lender Sberbank, warned that banks may be unable to pay back loans from the central bank at the current high interest rates. Capital Economics pointed out that the interbank lending rate in Russia had jumped to more than 27%, suggesting the market could be starting to freeze up. It said: “This has often been a precursor to banking crises and, as a result, the interbank rate will be a key indicator for investors to watch over the coming days and weeks.”

Meanwhile Russia’s lower house of parliament approved a draft law on Friday that would give the banking sector a capital boost of up to 1tn roubles (£10bn).

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