By Simon Jessop and Francesco Canepa
LONDON (Reuters) - The FTSE 100 snapped its longest losing streak in 2-1/2 years on Monday as the building sector surged on a government plan to pump more cash into a scheme to boost construction.
Potentially profit-sapping Western sanctions on Russia over Crimea after voters there opted to quit Ukraine, capped index moves. It meant intraday highs hit soon after strong U.S. manufacturing data failed to hold.
Persimmon was among top FTSE gainers, rising 3.7 percent after British finance minister George Osborne said on Sunday he would extend a scheme to encourage housebuilding and develop a new town close to London.
"It is mainly being used outside London by first-time buyers, so I think it's going to be positive for names like Taylor Wimpey, Persimmon and Barratt," Ian Osburn, an analyst at Cantor Fitzgerald, said.
Among other housebuilders, Barratt Developments, Taylor Wimpey and Crest Nicholson gained between 2 percent and 4 percent.
"If anything I would have expected the reaction to be even more positive," a second sector analyst said, as it kicked uncertainty about how the government will exit its support to the sector "into the long grass".
The promise of better profits in the sector, one of the best-performing this year, helped the FTSE 100 add 0.6 percent to 6,568.35 points, bouncing off Friday's one-month low after a week in which it fell 2.8 percent.
In spite of Monday's gains, it remains down 4.3 percent on the year, with much of that drop coming in the last two weeks.
The UK blue-chip index had fallen for six straight sessions, its longest losing streak since November 2011, leaving it "oversold" on its seven-day Relative Strength Index, a technical momentum indicator.
Qualified relief at the lack of any upsurge in violence linked to the referendum in Crimea underpinned the FTSE's bounce, said Markus Huber, senior trader at Peregrine & Black, although near-term gains would depend on the scale of anticipated sanctions.
In a sign of that relief, the cost of insuring against future swings on the FTSE, as measured by the FTSE 100 Volatility index, fell about 10 percent - though it remains more than 50 percent higher than at the start of the year.
Colin McLean, fund manager at SVM Asset Management, said he considered the recent market falls "a dip to buy on".
"I think Europe, at least, and probably the U.S., are still in a bull market and will make new highs this year.
The FTSE 100's year to date high is 6,867.42 points.
(Editing by Louise Ireland, John Stonestreet)