Britain's top shares surged 1.7 percent in a global rally on Tuesday, as banks and miners forged higher and investors bet the US Federal Reserve would serve up another interest rate cut to soothe recession nerves. The UK's FTSE 100 index closed 96.3 points higher at 5,885.2. European and US shares also rose.
However, the FTSE 100 has shed about 9 percent so far this year, remaining jittery as persistent fears of a looming US recession have triggered recent ructions in stock markets worldwide.
Across the Atlantic, the Dow industrials was buoyed by the anticipation of another rate cut and worries about the economy were calmed by data showing a higher-than-expected rise in orders of durable goods last month. "The statistics we've had today (have) been on the upside, so that may have soothed nerves a bit," Hargreaves analyst Keith Bowman said of the US data.
"The fact that investors have pretty much taken it for granted that they will get a half-point cut from the Fed (Federal Reserve) tomorrow evening may also be doing its bit to instil some confidence for the time being."
The Fed, which slashed US interest rates by 75 basis points in emergency action last week to 3.5 percent, is widely expected to lower the cost of borrowing on Wednesday, possibly by another 50 basis points.
The US rate-cut hopes boosted banks, which together added 24 points to the index. Royal Bank of Scotland gained 4.7 percent and HBOS ended 2.5 percent higher. But Alliance & Leicester (A&L) shares dropped 3.5 percent after the bank said it had secured funding to see it through this year but warned profits would plunge after it trebled the impact of its losses on complex financial instruments. See.
Miners were the leading sector, helped by rising copper prices. Shares in Anglo-Swiss Xstrata rose 5.9 percent after controlling shareholders in Brazil's Vale allowed a study of a possible take-over bid to go ahead.
Kazakhmys gained 4.7 percent, Rio Tinto added 2.7 percent and Antofagasta tacked on 6.7 percent. Shares in medical devices firm Smith & Nephew jumped 4.5 percent after its US peer Zimmer posted strong fourth-quarter earnings.
Among UK companies reporting, British life insurer Prudential gained 3 percent after it reported a 16 percent rise in 2007 sales on Tuesday, boosted by business in Asia where it said growth would soften in 2008 after a bumper year.
But on the downside, Imperial Tobacco Group slipped after it said trading was in line with its expectations in an update ahead of its annual general meeting later on Tuesday.
Oil major Royal Dutch Shell dipped 0.6 percent as concerns mount that the company had a tougher time in replacing reserves in 2007 than thought. Shell is due to report on Thursday. Shire fell 1.2 percent after Goldman Sachs cut its price target but maintained a "buy" rating.
In other news, the British government ordered pay-TV firm BSkyB to cut its 17.9 percent stake in broadcaster ITV to below 7.5 percent because it hampered competition. BSkyB gained 3.5 percent, while ITV added more than 2 percent.