A RALLY in Europe caused by a drop in unemployment in Germany helped the FTSE-100 close 24.7 points higher at 6755.5, but there was bad news for recent FTSE-100 entrant Royal Mail.

It suffered share losses after a City broker Cantor Fitzgerald hit the firm with a sell rating.

It initiated its coverage with a warning that Royal Mail still faced significant challenges and its current valuation and dividend were "no longer compelling", sending Royal Mail's shares 2% lower to close the day down 11p at 561p.

Loading article content

Royal Mail shares have surged from their starting point of 330p to more than 600p in recent weeks, but Cantor suggested now was the time for investors to sell.

With more economic optimism also in the UK, the pound strengthened against most major currencies as figures revealed new car sales raced to a six-year high in 2013.

Sterling rose to 1.64 US dollars and 1.21 euros.

Banking stocks were among those making gains, with Lloyds Banking Group setting the pace with a 2.4p rise to 82.5p. HSBC followed, up 15.8p to 675.8p, while Royal Bank of Scotland cheered 6.1p to 350.4p.

Retailers continued to fluctuate ahead of eagerly-awaited festive trading updates from Sainsbury's, Tesco and Marks & Spencer. Investors eyed some value in the department store's shares following recent heavy falls caused by speculation that it had a poor festive period.

Marks & Spencer, which is due to publish its trading update on Thursday, rose 0.8p to 441.1p.

Sainsbury's edged 1.1p higher to 368.9p despite Bank of America Merrill Lynch cutting its rating on the stock. The supermarket is expected to lose its record for underlying sales increases today, with analysts pencilling in a decline after 35 quarters of growth in a row. Tesco was 0.5p lower at 331.8p, while Morrisons faded 2.7p to 253.6p.

Elsewhere in the retail sector, Topps Tiles highlighted the impact of a recovering property market as it reported that like-for-like sales rose 9.3% in the 13 weeks to the end of the year. Its shares were 4p higher at 133p.

Homewares retailer Dunelm fell 36.5p to 942.5p in the wake of a 2.9% improvement in underlying sales over the same period as some analysts were disappointed the company's first-ever TV advertising campaign had not given more of a boost to trade.

Shares in water company Severn Trent fell by 2%, or 37p to 1667p, after JP Morgan highlighted fears that Ofwat may be tougher than expected on the sector in the current round of price negotiations.

The biggest FTSE-100 risers were International Airlines Group up 14.2p to 428.2p, Lloyds Banking Group 2.4p ahead at 82.5p, Coca-Cola HBC 46p stronger at 1800p and Aviva 11.2p higher at 454.2p

The biggest FTSE-100 fallers were Fresnillo down 30p to 705.5p, Severn Trent off 37p to 1667p, ARM Holdings 23p lower to 1055p and Rexam 10p weaker at 505.5p.