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Stagecoach shares rise following rail franchise extension

The promise of £1 billion for shareholders ensured Rolls-Royce set the pace today in a session when the FTSE 100 Index showed a return to form.

The promise of £1 billion for shareholders ensured Rolls-Royce set the pace today in a session when the FTSE 100 Index showed a return to form.

Rolls shares jumped by 6% or 59.5p to 1069.5p after the engines giant announced plans to buy back stock once it has received the proceeds of the planned sale of its gas turbines and compressors business to Siemens.

In corporate news, shares in transport group Go-Ahead rose after it said it expects its Southern, London Midland and Southeastern rail division to deliver operating profits ahead of previous expectations.

The improvement reflects lower energy costs and a better operational performance after its three rail franchises achieved growth in passenger journeys of between 4% and 5%.

Shares rose 4% or 87.1p to 2264.1p as Investec Securities kept its buy rating on the stock and increased its forecast for Go-Ahead's full-year pre-tax profits by 9.2% to £83 million.

Rival operator Stagecoach also lifted 2% or 7.7p to 375.2p after its Virgin Rail joint venture secured a new West Coast mainline franchise until March 2017.

Virgin is paying £430 million to the Government over the course of the contact, a 58% increase on the £98.1 million a year it pays currently.

The wider London market was also in positive mood after the US Federal Reserve signalled that interest rates would remain at record lows for longer, despite a steadily improving jobs market and modest inflation.

The FTSE 100 Index was 56.4 points higher at 6835, while the pound rallied against the US dollar to hold a position above 1.70 amid expectations that the Bank of England will increase rates before the end of this year.

Optimism over the UK recovery was boosted by the latest retail sales figures, which showed the sector is enjoying the longest period of sustained growth since before the recession. Demand for UK-made goods also rose strongly in June, according to the latest CBI Industrial Trends Survey.

Vodafone was one of only four stocks on the blue-chip fallers board after Bank of America Merrill Lynch said the near-term outlook in Europe for the mobile phone giant continued to be difficult. Shares were off 0.4p at 197.7p.

In contrast, BT rose 5.6p to 390.5p after regulator Ofcom outlined new requirements on the telecoms firm to promote competition among superfast broadband providers.

Shares were higher as Ofcom also rejected a complaint from rival TalkTalk that BT had failed to maintain a sufficient margin between its wholesale and superfast-broadband retail prices.

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