Britain's top share index extended gains on Thursday as bid talk and higher copper prices boosted miners but fears of more trouble in the credit market brought markets back from the day's highs. The FTSE 100 index closed 0.7 percent higher at 6,349.1, its strongest close in two weeks, having rallied 2.7 percent on Wednesday on hopes the Federal Reserve may cut rates.
Benchmark indexes in France and Germany also rose. Miners benefited from talk of bid interest in the sector, with Vedanta figuring among the top gainers on speculation it was the subject of a take-over. The stock closed 7.8 percent higher despite the Indian-focused mining group denying it was in take-over talks.
Vague bid talk linking Xstrata with a move for Anglo American boosted the stocks by 4.8 and 6.7 percent respectively. Antofagasta also rose 7.4 percent. Energy stocks rose along with crude prices, which surged sharply following an explosion at a major pipeline that interrupted crude oil imports to the US BP was up 1.7 percent and BG Group gained 1.9 percent.
"All of yesterday's optimism isn't forgotten but it's kind of consolidating. It's the miners really in terms of sectors that are holding things together," said Tim Hughes, head of sales trading at IG Index. "The reality is that there are two fundamental camps as regards to the banks and the financial sector and they are battling it out."
Banks under performed and gave up early gains, with Royal Bank of Scotland falling as much as 4.2 percent on renewed market talk of possible writedowns. The stock pared most of the day's losses and ended 0.3 percent lower. Barclays fell 2.5 percent and HBOS lost 0.5 percent. Alliance & Leicester bucked the trend after a surprise trading update allayed concerns about its position in tough funding markets.
The lender jumped 8 percent after saying it had pre-funded its maturing medium-term funding into the third quarter of 2008. Among losers, Mitchells & Butlers fell 5.7 percent and topped losers after the pub and restaurant operator warned waning consumer confidence could hit spending in its pubs and restaurants.
In a sign of further weakness in the broader economy, data showed British house prices fell in November at their steepest rate for 12 years. Bank of England Governor Mervyn King said the outlook for both inflation and growth is worse, but he gave little indication the central bank would cut interest rates next week.
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