By Atul Prakash
LONDON (Reuters) - Britain's top share index climbed to a five-month high on Tuesday, with investors flocking to buy energy stocks after strong results from BP raised expectations for earnings from the sector.
BP was the top-performer on the blue-chip FTSE 100 index, surging 5.6 percent after the company announced forecast-beating profits, a dividend hike and plans to sell assets.
Notably bucking the market's rise was Lloyds banking group. It fell 2 percent after the bank announced a further 750 million pound charge in the third quarter for the mis-selling of payment protection insurance.
BP's results urged some investors to bet on upbeat results from other major energy firms this week, including Royal Dutch Shell, Total and Statoil.
"We are overweight on the energy sector as we believe that the companies have got more potential to surprise on the upside at this point in the cycle," Robert Parkes, equity strategist at HSBC Securities, said.
"Earnings momentum for the sector has been better than the wider market, oil prices have stabilised, concerns of a hard landing in China have been fading and the sector is exposed to the slowly improving global economy."
The UK oil and gas index, the best-performing sector, recorded its biggest daily gain in nearly a year, rising 2.4 percent to a three-month high.
It helped push the FTSE 100 up 48.91 points, or 0.7 percent, to end at 6,774.73, after hitting 6,777.16 in intraday trade, its highest since May.
BP alone added 18.7 points to the FTSE.
"BP results show that the confidence in the company is back after a massive oil leak disaster some years ago," said Tom Robertson, senior trader at Accendo Markets.
"However, I am cautiously optimistic on the stock market as its near-term direction could be dictated by earnings results."
A third of the way through the reporting season, 53 percent of companies have either met or beaten earnings expectations, roughly in line with the previous three quarters. But looking purely at revenue, 67 percent of companies have missed expectations, according to StarMine data.
"Investors are still concerned about revenue growth, but of more concern right now is the outlook and whether companies see things improving in 2014," said Craig Erlam, analyst at Alpari.
Investors' will keep a close eye on the Federal Reserve's two-day meeting from Tuesday for hints about when the U.S. central bank could start trimming its massive stimulus programme, which has helped stocks to set multi-year highs.
Markets expect the Fed to extend its $85 billion monthly bond-buying scheme into next year while it assesses the impact of this month's government shutdown on economic growth.
(Editing by Angus MacSwan and Susan Fenton)