Britain's FTSE finished off seven-week highs on Tuesday, with China's reassurance on growth lifting miners but failing to provide enough momentum for the broad index to overcome technical resistance. Basic materials, the third-biggest sector in the FTSE 100 and the market's clear laggard this year, outperformed after the Chinese premier made a commitment to maintain growth above 7 percent.
China's plans to boost railway expansion also lifted mining shares, heralding the potential for even more metals demand from the world's top consumer. Glencore Xstrata gained 5.1 percent as strong metals prices and the China news lured investors into what has been one of the sector's laggards. Some also cited debate around Wall Street banks' commodity operations as a potential sentiment boost for the commodity trader.
Anglo American added 2.1 percent, with gold continuing its recent strength, partly on the back of buying from China, and after in-line results from Kumba, which contributes 40 percent of Anglo's earnings. "With gold and silver trading up above technical levels, the precious metals miners are looking much more attractive," said Matt Basi, trader at CMC Markets.
"The second thing is that all this talk of potentially more accommodative monetary policy in China to support more growth going forward is mining-bullish ... But the volumes aren't exactly impressive so we don't want to read too much into it." Trading in other sectors was subdued in thin summer trade and the FTSE 100 closed down 25.73 points or 0.4 percent at 6,597.44. It failed to hold onto a seven-week intra-day high reached earlier in the day at 6,657.66 points after encountering technical resistance around that area for the second time in four sessions.
"Any weakness could see the index drop towards the 10-day moving average near 6,580," said Kash Kamal, analyst at Sucden Financial. Chemical stocks were among the worst performers after downbeat results from Croda, pushing its shares down 4.7 percent. Also weighing on the index, Tullow Oil slumped 6.6 percent in heavy volume after it announced it had dug a dry well in French Guiana.
"We view the well results as disappointing. Although the combined impact on our risked net asset value is small (approximately 1 percent), and we leave our target unchanged, Tullow's share price requires exploration success to underpin the valuation," analysts at Canaccord Genuity said in a note.
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