Britain's top share index rallied nearly 3 percent on its first trading day of 2009 and extended its winning run to four sessions on the back of commodities stocks. Defensive drugmakers fell after outperforming last year. The FTSE 100 closed up 127.62 points, or 2.9 percent, at 4,561.79 on Friday.
It closed out 2008 on Wednesday with an annual fall of 31 percent - its worst yearly drop since its launch in 1984. Activity was light on Friday with over 400 million shares changing hands, compared with Wednesday's 242 million and last week's daily average of 511 million.
"It's encouraging to see the market pushing upward, as we start this year. Economic forecasts are absolutely dire," said Philip Lawlor, chief portfolio strategist at Nomura. "The caveat is that it's a remarkably thin market." "January could end up being quite a good month, but the real test is going to come through the February and March period when the news flow from corporate is going to be still negative," he said, referring to quarterly corporate reporting results.
European shares also finished the day higher while US stocks gained. Heavyweight oil producers contributed the most points to the UK benchmark as crude prices rose above $46 a barrel.
BP, Royal Dutch Shell, BG Group and Tullow Oil were up between 3.9 and 5.1 percent. Miners were also in demand, tracking gains in base metal prices. Xstrata jumped nearly 17 percent, Rio Tinto soared 13.7 percent, Anglo American gained 10.5 percent, Kazakhmys surged 10.4 percent and Vedanta Resources climbed 13.4 percent.
The FTSE 350 mining index lost almost 56 percent last year. Banks, at the epicentre of a financial crisis, which pushed them down nearly 57 percent in 2008, kicked off the year on a bright note. HSBC, Barclays, Royal Bank of Scotland, HBOS and Lloyds TSB advanced 2.4-6.3 percent.
However, data still pointed to grim economic times in 2009. A survey showed the credit squeeze for British families and businesses looks set to intensify despite unprecedented measures to recapitalise the banking system and get lending flowing again.
The pound remained weak on foreign exchange markets. In the United States, factory activity fell to a 28-year low in December, a more severe contraction in the sector than expected.
Retailers put in a strong showing after John Lewis, the employee-owned group, said sales surged at both its department stores and upmarket grocery chain in the days before and after Christmas.
Marks & Spencer, which delivers a trading statement next week, strengthened 2.9 percent, Next put on 2.6 percent, Kingfisher added 2.4 percent and Sainsbury rose 2.4 percent. Drug stocks were the biggest drag on the FTSE 100, falling back after strong gains over the last sessions of 2008, with GlaxoSmithKline off 1.4 percent and AstraZeneca down 0.5 percent.
The pharmaceutical and biotechnology sector was top performer among the FTSE 350 sub-sectors last year. Non-life insurers, also a fairly resilient sector in 2008, were weak as well, with Amlin losing 1.9 percent and Admiral Group down 1.1 percent.
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