Britain's FTSE boosted by PMI before election

By Alistair Smout and Liisa Tuhkanen

GLASGOW/LONDON, May 6 (Reuters) - Britain's top share index edged higher on Wednesday, boosted by a survey showing that the country's service sector grew faster than expected last month.

The market showed little sign of nerves before Thursday's parliamentary election. However, option prices suggest the index may see its biggest swing in two years on Friday, when investors get their first chance to react to the result of one of the closest UK elections in decades.

The Markit/CIPS services purchasing managers' index (PMI) climbed to an eight-month high in April, countering other signs that the economy was slowing down. Indicators from Europe were also positive.

"In the UK and in Europe, the service sector PMIs were just better than expected and that's what's helping lift sentiment," said Jasper Lawler, analyst at CMC Markets.

Britain's FTSE 100 closed 0.1 percent up at 6,933.74 points. The index, which reached a record high of 7,122.74 points last month, is up around 6 percent so far in 2015.

Software company Sage was the top gainer, up 8 percent, after posting organic revenue of 682 million pounds ($1 billion), in line with its 6 percent growth target for the year.

Reassuring results also lifted tobacco and engineering sectors. Imperial Tobacco Group closed up 1.8 percent after it stood by its outlook for the remainder of 2015, despite reporting a 5 percent decline in underlying tobacco sales volume in the first half of its fiscal year.

Rival British American Tobacco advanced 1 percent after Imperial Tobacco's results. Engineer GKN rose 0.5 percent after reporting a 1 percent rise in organic sales and forecasting further growth this year.

UNPREDICTABLE ELECTION

Many traders were focused on Thursday's election, where polls show the two main parties, Labour and the Conservatives, running neck-and-neck, with neither likely to command a majority in parliament. The Scottish National Party (SNP) could emerge as the third-biggest party.

Nerves over the election have hit sterling, but the stock market reaction has been more muted.

"It can end up being very much a reactive response if something unexpected does happen, but at the moment the assumption will be that the economy will keep improving no matter who's in government," Lawler said.

Industries at risk of more regulation, such as utilities, have underperformed this year, but domestically exposed stocks have actually outperformed the internationally oriented FTSE 100. http://link.reuters.com/gef44w

The FTSE 100 Volatility Index, a gauge of investors' fears, fell 6.7 percent on Wednesday and remains down from peak levels reached in January.

Nevertheless, some analysts said uncertainty around the election may keep investors on the sidelines for the next few weeks as talks to form a new government begin.

Logic Investments' Harry Shann said the FTSE could fall to 6,800 points. "We're seeing a lot of complacency in the FTSE ahead of the election, but we still expect the FTSE to fall on the back of the uncertainty over the vote," he said. (Editing by Mark Heinrich)

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