By Toni Vorobyova
LONDON (Reuters) - British equities rose on Friday, with market attention focused on the debut of Royal Mail, up 35 percent from its issue price after one of the country's biggest privatisations in decades.
After a heavily oversubscribed sale, shares in the former postal monopoly changed hands at 445 pence in conditional trading ahead of their addition to indices on Oct 15.
Demand was fuelled by investors who did not get as many shares as they had wanted in the initial float, and the rally prompted charges by the government's political opponents that the company had been sold too cheaply.
"There is still some disagreement on how they have been priced, but given the potential uplift that we ... expect to see, the valuation remains undemanding. Investor appetite from both institutional and retail suggests more inflows will occur," said Atif Latif, trader at Guardian Stockbrokers.
If the Royal Mail shares manage to hold on to the gains, that could win them a place in the blue-chip FTSE 100 rather than the mid-cap FTSE 250 at the December reshuffle.
The main driver for the market as a whole remained events in the United States, with investors cheering signs that politicians appeared ready to end the deadlock after meeting at the White House.
"The Royal Mail is a bit of a sideshow to the wrangling in America. They have sat down and had some talks, which markets have met with optimism. But if things turn sour over the weekend this optimism could quickly disappear," said Jonathan Roy, broker at London Stone Securities.
The FTSE 100 closed up 56.70 points, or 0.9 percent, at 6,487.19 points, building on a 1.5 percent jump the previous session and hitting its highest levels since the U.S. government went into shutdown at the start of this month.
The UK index outperformed its European peers, recovering after having been worst hit in recent sessions due to its greater U.S. exposure - its companies earn nearly a quarter of their revenues in the United States, making the FTSE around 50 percent more reliant on the region than the STOXX Europe 600.
Underscoring the risks for corporate earnings, mid-cap defence equipment maker Chemring dropped 23 percent after warning that its profits will suffer.
Larger defence group BAE Systems fell 3.2 percent.
Investors are keen to see a deal before the October 17 deadline to raise the U.S. debt ceiling. However, markets are likely to remain jittery unless the deal - needed to avoid a sovereign default in coming weeks - offers a long-term solution.
"Volumes will continue to be light though going into the weekend and gains will be limited as the proposals for the U.S. debt ceiling are still far from a perfect solution," Sanlam Securities' head of trading, Mark Ward, said.
(Additional reporting by Tricia Wright; editing by Stephen Nisbet)
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