Babcock International PLC (LSE:BAB), the FTSE 100 engineering and defence group, led the blue-chip risers with a 6% gain after Citi said the appointment of John Healey as chancellor should prove good news for UK defence shares.
BAE Systems PLC (LSE:BA.), Europe's largest defence contractor, climbed 3.3%.
Citi argued the market would welcome Healey's move to the Treasury, given that he resigned as defence minister earlier this year, explicitly citing a lack of funding as his reason for going.
The bank said that while Healey would face many competing demands on spending as chancellor, and the scale of any defence allocation remained uncertain, UK defence stocks were likely to perform well.
Citi pointed to Babcock and QinetiQ (up 4%) as the biggest potential beneficiaries, with both generating around 60% to 65% of sales from UK defence.
BAE Systems follows, with roughly 25% to 30% of its sales tied to the UK.
Thales and Leonardo, the French and Italian defence groups, each derive around 10% to 15% of sales from the same source.
The reaction underlines how closely the sector's fortunes are now bound to government budget decisions.
Defence shares across Europe have been among the strongest performers over the past two years, buoyed by rising military spending commitments and heightened geopolitical tension.
A chancellor who quit the frontbench over defence funding gives investors reason to bet that the Treasury will look more favourably on the sector.
Citi's note suggests the appointment removes at least some of the uncertainty that had hung over future budget settlements.
